Debit Card Rules Survive Retailers’ Appeal
Credit unions wondering if the courts would make them change their debit card programs can rest easy for now.
An appeals court in Washington left in place the Federal Reserve's original debit interchange rule: Debit card issuers (including four credit unions) with more than $10 billion in assets have their debit card interchange capped at 21 cents.
Smaller credit unions can receive more interchange per transaction, but all debit issuers have to have relationships with at least two independent debit processing networks to encourage competition.
The March 20 ruling tossed out last year's decision by U.S. District Judge Richard Leon that had largely gutted the rule and raised the possibility of lowering the cap and raising the number of required processors.
Retailers, angered by what they considered to be too high a cap, brought suit against the Federal Reserve's rule, arguing the regulator had not interpreted the statute correctly in establishing the cap and requiring only two independent payment networks.
Leon agreed. The appeals court did not.
“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 National Retail Federation repeated its displeasure with the March 21 decision but did not say what it will do next.
The NRF could request that all judges on the court hear the case instead of the three-judge panel. But since the panel ruled unanimously, analysts familiar with the court said it was unlikely the entire court would consider it.
Second, the retailers could appeal to the Supreme Court, but absent any notable legal conflicts, such as having two conflicting rulings, the high court is seen as unlikely to take it up.
Finally, retailers could ask for a retrial in district court. While a real possibility, the experts said, any new case would take place in the light of the upper court's ruling which directly attacked the retailers’ central arguments, making a victory there unlikely.
“Theoretically, the merchants have options on how to next proceed,” wrote Brian Gardner, an analyst with Keefe, Bruyette and Woods. “However, as a practical matter, we do not think these options are good ones for the merchants.”