Now that U.S. District Judge Richard Leon has invalidated almost all of the Federal Reserve’s debit regulations, what might be the next steps?

First, lawyers representing the Federal Reserve and the retail associations which brought the case will have to appear before Leon in his Washington, D.C., courtroom to discuss how long the judge might stay this week’s ruling overturning the current debit regulations and under what conditions the Federal Reserve might proceed to draw up another rule.


While Leon threw out the existing regulations on Wednesday, he did not do so immediately, choosing to stay his order pending the Federal Reserve writing another rule.

Both sides have until a hearing on Aug. 14 to make cases for whether and for how long the stay should be continued. Leon’s only requirement is that the process of writing a new rule must take “months, not years.”

That’s the first opportunity for the decision to be modified.

Second, the Federal Reserve and Justice Department will have to decide whether they will appeal the decision. CUNA, NAFCU and other trade groups were not defendants in the original case and cannot appeal this decision.

The Indiana University School of Law’s Sarah Jane Hughes, an expert on administrative and payment law, pointed out that while the Federal Reserve can be “very persuasive,” it’s not clear that it will succeed in getting the Justice Department to appeal Leon’s decision.

“They might decide they don’t want to be seen as doing the bidding of the big banks or any number of things,” she pointed out. “We should have a better idea after the meeting on the 14th.”

Should the Justice Department and the Federal Reserve not appeal, the Fed has a number of different ways it could approach a new rule in months rather than years, Hughes said.

She observed that the time between the signing of the Dodd-Frank law and the publishing of the first proposed rule had itself been a matter of months, from July to December 2010 and, presumably, the Federal Reserve would not have to start the process over again from the beginning, thus cutting the time line significantly. 

Or, the Federal Reserve might choose to use a regulatory short cut, the legal scholar said.

“It’s possible the Fed could use an Interim Final Rule which would let the key aspects of a new rule be put into place in the meantime and then come back and  make changes,” Hughes said,  based on comments and other factors for the last version of the final rule.

But whatever the Federal Reserve does, Hughes was skeptical that its action would end the matter.  It was possible, she pointed out, for the retailers to dislike what the Fed did and sue again, and the issuers, whether credit unions or banks, also can sue if they don’t like the Fed’s new rule. 

“It’s very possible this could run for some time,” she added.