Appeals Court Overturns Interchange Ruling
At long last, the U.S. Court of Appeals for the DC Circuit has left intact the Federal Reserve Board's rule implementing the Durbin amendment of the Dodd Frank Act.
In a ruling released Friday, a three-judge panel overturned a lower court's 2013 decision that largely gutted the Fed’s rule.
“The district court granted summary judgment to the merchants, concluding that the rules violate the statute’s plain language,” the panel wrote in its 38-page decision. “We disagree. Applying traditional tools of statutory interpretation, we hold that the board’s rules generally rest on reasonable constructions of the statute ...” the panel wrote.
The court did send part of the regulation that addresses the role the costs of monitoring fraud should play in calculating the debit interchange cap back to the Fed for further explanation; however, but the court acknowledged this was a minor part of the rule.
The decision clears an atmosphere of uncertainty that has hung over credit union debit programs since Judge Richard Leon ruled on July 31, 2013, that the Fed would need to rewrite its debit rule.
Specifically, the possibility that credit unions would have to establish relationships with more debit networks to comply with the Durbin amendment is now unlikely.
None of the retail trade association plaintiffs immediately provided comment about the ruling. The retailers argued the Fed misinterpreted the Durbin amendment when it crafted the rule, leaving the interchange cap too high and not opening up debit transaction routing enough.
Reactions to the decision from credit union trade associations were predictably approving.
While credit unions were not litigants in the case, a coalition of credit unions and other financial institutions filed briefs with the court, largely in support of the Fed’s position, they also stressed that the debit cap was too low.
“This is truly a rebuke to the merchants and a victory for credit unions,” said CUNA General Counsel Eric Richard. “While CUNA and our partner members of the coalition of financial institutions continue to maintain that the cap is too restrictive, this decision constitutes an almost total rejection of the merchants’ arguments. We hope this decision will be a first step toward restoring some grounding in reality to the debate over interchange fees, not only in the courts, but also in Congress and at the regulatory agencies.”
NAFCU also expressed approval of the ruling while reserving approval of the rule.
“NAFCU is pleased with the appeals court’s decision as it mitigates the harm that would have been done by the district court ruling. We still believe that the Fed’s rule is flawed,” said Carrie Hunt, NAFCU’s senior vice president of government affairs and general counsel. “NAFCU will continue to advocate for credit unions’ interests and abilities to receive income on card services and recover costs incurred in transactions.”