Overturning the Federal Reserve's cap on debit interchange forlarge debit issuers will hurt credit unions, the industry's twolargest trade associations said Wednesday after a federal judgethrew out the cap.

CUNA and NAFCU also signaled they may take the decision to anappeals court.

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The regulations to implement the Durbin Amendment to theDodd-Frank financial reform law set the cap at 21 cents per debittransaction for issuers with more than $10 billion in assets butostensibly carved out an exception for issuers with fewerassets.

There are only four credit unions that large: BECU, NavyFederal, PenFed and North Carolina's SECU.

There has been an active debate over whether or not thecarve-out has been working.

CUNA General Counsel Eric Richard took a dim view of thedecision of Wednesday's decision by U.S. District Judge RichardLeon and signaled that it may appeal.

“This decision will have a potentially devastating impacton the ability of small debit card issuers, particularly creditunions, to continue offering this vital payments service to theirmembers and customers,” Richard said after taking a preliminaryread of the opinion.

“The decision will, no doubt, challenge credit unions tocontinue their debit card programs without incurring drastic cuts in revenue, or imposingadditional fees on their members – the last thing that creditunions want to do,” Richard said.

“Right now, the current debit interchange system remains thesame. However, the court has signaled it is going to consider thecurrent system further in the weeks to come. We are investigatingour legal options on behalf of credit unions going forward,” hesaid.

CUNA and NAFCU are members of the Electronic Payments Coalition,an association of issuers and networks, banks and credit unionsformed to defend card interchange and which has generally handledlitigation. CUNA has also filed an amicus brief in this particularcase.

NAFCU General Counsel Carrie Hunt also lamented the ruling andalso indicated that NAFCU might appeal. “NAFCU has maintained, andcontinues to maintain, that the Fed's rules on debit interchangefee standards and network exclusivity are reasonable and in keepingwith its own authority under the law,” Hunt said.

“As it stands, the court's ruling will have an irreparable,detrimental impact on credit unions' ability to ensure theirmembers receive the services they need. We are reviewing it todetermine our next step,” she said.

Meanwhile, the EPC declined to comment on the ruling, decidinginstead to let its members directly involved in the suit to speakout.

However, Chris Matthews, a spokesman for a coalition offinancial institutions which had previously filed an amicus briefin the case, did comment.

“This is an extraordinary decision that will have majorrepercussions for customers of both small and large financialinstitutions,” Matthews said.

“The Fed's rule was already causing consumer harm and now itlooks like it will only get worse. If the past is any indication,the merchants will add even more to their $6 billion windfall, andconsumers will still see none of the promised benefits,” hesaid.

Matthews was joined in his criticism by the chief spokesman forthe nation's small banks.

“It is disheartening that the retailers continue to add to theirwindfall while failing to live up to their promises of lowerprices,” said Camden Fine, president/CEO of the IndependentCommunity Bankers of America.

“While there is technically an exemption for certain financialinstitutions, community banks and their customers will be hurt bythe Durbin Amendment's price controls,” Fine said. “We're veryconcerned that any new version of the caps will leave them in aneven worse position.”