Retailers Abandon Exclusivity Fight on Debit
Retailers appear to have accepted the provisions of the Federal Reserve’s debit interchange rule that regulate how many payment networks must be available for each debit transaction.
Under the Fed’s rule, credit unions and other debit issuers have to make sure at least two unaffiliated payment networks are available for debit transactions.
In practice, that has usually meant one payment network to process signature authorized transactions and one to process PIN authorized transactions.
Retailers challenged this part of the rule, arguing that the Durbin Amendment to the Dodd-Frank financial reform law required issuers or networks to provide more options for payment processing.
The U.S. Court of Appeals for the D.C. Circuit rejected those efforts when it affirmed the Federal Reserve rule in March.
In the application filed Monday to the Supreme Court to consider overturning that decision, the National Retail Federation and other groups attacked the amount of debit card interchange the rule allowed, but did not mention the exclusivity rules except in a footnote that indicated the rules were not involved in the appeal.
“Petitioners also challenged a separate provision of the Rule governing card network non-exclusivity…That issue is not before this Court,” read a footnote on page 14 of the brief.
Doug Kantor, a partner in the Washington office of Steptoe and Johnson, who serves as counsel for the retailers, said the group had not raised the issue in the appeal because a previous brief from the Federal Reserve said the existing regulation had met the law's requirements.
"We had been concerned from the begining about our ability to cross process when necessary and when the Federal Reserve said it believed their existing regulation allows that, we took them at their word," Kantor explained. Kantor further explained the term cross processiong means the ability to process a debit transaction authorized with a PIN across a signature debit network and vice-versa. Such changes could be accomplished at the network level and would require little or no changes at the issuer level, retailers had said in previous briefs.
Although only credit unions with more than $10 billion in assets have to comply with the rule’s debit interchange cap, all credit unions potentially faced having to make changes to their debit programs had retailers challenged the network rules and won.