U.S. District Court Judge Richard Leon has invalidated the Federal Reserve’s cap on debit interchange for debit issuers with over $10 billion in assets and ordered the regulator recalculate it.

The Fed established the debit cap in accord with regulation it put into place to enforce an amendment to the Dodd Frank financial reform law that was named for its chief sponsor, Sen. Richard Durbin (D-Ill.)


In an often sarcastic 58-page opinion issued Wednesday, Leon, who sits on the District Court for the District of Columbia, concluded that that the Federal Reserve had included costs of debit card issuing in its calculation of the cap that Leon said Congress did not intend when it passed the Durbin Amendment.

“Accordingly, I find that the text and structure of the Durbin Amendment, as reinforced by its legislative history, are clear with regard to what costs the Board may consider in setting the interchange fee standard:,” Leon wrote.

“Incremental ACS [authorizing, clearing and settling] of individual transactions incurred by issuers may be considered. That’s it!”

At times parsing sentences in both the amendment and the Fed’s rule and at least once footnoting a popular manual on writing, Leon declared that the results were clear.

“In short, the Board’s interpretation is utterly indefensible. As explained above, the statute is not silent or ambiguous. Rather, the plain text of subsection (a)(4)(B) and the statutory structure and legislative history of the Durbin Amendment clearly demonstrate that Congress intended for the Board to exclude all other costs,” the judge wrote.

Credit unions were among the groups who lobbied unsuccessfully against the 21-cent cap, and litigation followed its imposition in October 2011. Reaction from one of the main participants in the long-running battle was swift and predictable.

“From the very beginning, retailers and restaurants knew the Federal Reserve Board of Governors had grossly misapplied the swipe fee law, also known as the Durbin Amendment,” said Mallory Duncan, general counsel for the National Retail Federation, which filed suit against the cap. 

“They failed to heed Congress’ call to set fee standards that were ‘reasonable’ and ‘proportional’ to the actual cost of a transaction. Instead, the Board manufactured a standard that was two to three times higher than the Fed staff recommended,” Duncan said.

“As a result, small ticket transactions, such as those imposed on convenience stores and restaurants, skyrocketed under the misapplied law,” he said.

“Congress clearly told the Fed to introduce competition and transparency into the debit card marketplace by making multiple networks available, so as to reduce swipe fees for merchants and their customers,” Duncan said.

“The Fed failed to do so, and the court rightly ruled against them as a result. Today’s decision is the first step in setting these initial wrongs right and will ensure that swipe fee reform is done correctly,” he said.