"They don't do many expedited appeals over there," Leon said, interrupting Alvarez and referring to the U.S. District of Columbia Circuit Court of Appeals, which would hear the case. 

Alvarez agreed but added the Fed hoped an appeal from both the plaintiffs and defendant would spur the court to move swiftly. Alvarez also said the Federal Reserve would ask the Appeals Court to stay Leon's July 31 decision pending appeal.

Even if the Court of Appeals grants an expedited process, a year could pass before there would be a final decision, both Leon and Alvarez said. And if the court does not grant an expedited process, a new decision might not come for 18 months.

At the Aug. 21 hearing, Leon reminded attorneys from both parties that his original stay, which he had continued once, was scheduled to expire that day, and he reiterated that he was inclined to let it expire. 

In response, both parties presented arguments for why Leon should leave his stay in place. In the end, he did extend the stay, pending a review of their written briefs on the question.

While the Federal Reserve has the authority to write an interim rule, Alvarez said, doing so would do nothing but confuse both debit issuers and merchants, and would require both parties make expensive changes to their payment systems while the courts decide what the law and rules should say.

Representing the merchant plaintiffs, Shannen Coffin, of the Washington-based law firm Steptoe and Johnson, said he largely agreed. However, he cited a previous case which he said appeared to give Leon authority to order the Federal Reserve to draft a new rule.

However, Coffin said the merchants were more interested in keeping what they considered to be a flawed rule in place until a new rule is written, rather than having no rule at all. That could happen had Leon lifted his stay of his July 31 decision and the Appeals Court did not grant one.

This response surprised Leon, who said the merchants appeared more willing to pay perhaps billions of more dollars—which they might not get back—than risk what could happen if banks had no rule overseeing the fees.

However, Leon pointed out, debit issuers would risk having to pay back any money from fee increases that could be put into place before a new rule is finalized.

Both sides have until Aug. 28 to present their arguments in favor of continuing the stay, though Leon observed that if the Appeals Court accepts the case, much of the matter could move out of his jurisdiction.

In a separate conversation, Coffin told Leon that the merchants did not believe he has the authority in the law to levy damages from any money merchants have paid under the current debit rule. Leon had raised the possibility of damages during an Aug. 14 hearing.

"We just don't see where in law that you have the authority to tell the banks to pay any money," Coffin said.  Judge Leon did not comment on Coffin's response, but said he still wanted to see arguments on the damages question by Aug. 28.

NAFCU General Counsel Carrie Hunt said her organization endorsed the Federal Reserve's appeal and, in particular, said NAFCU would not support having the Federal Reserve write an interim rule while the legality of the old rule was still undecided.  That sort of confusion and uncertainty would hurt NAFCU's member credit unions, she said.

CUNA President/CEO Bill Cheney also endorsed the Fed's decision to appeal. 

"Although the Fed's rule is far from perfect for credit unions, the district court's decision compounds Durbin's already negative consequences and is the wrong result for consumers," he said. 

Craig Shearman, vice president for government relations for the National Retail Federation, said his group regretted the Fed's decision to appeal, but said they wanted the appeal to move swiftly.

"We are very disappointed to see the Fed giving in to the banks," Shearman said. "The facts are very clear that the Fed set the cap far higher than intended by Congress, and the court has insisted that the mistake be fixed as soon as possible. Instead, the Fed has taken a position that will drag this out."