CUNA, NAFCU and seven bank trade associations decried the Federal Reserve's original debit interchange rule even as they appealed a federal judge's opinion which overturned it.

The arguments came in a brief the organizations have filed in support of the Federal Reserve's appeal of a July 31 decision from U.S. District Court Judge Richard Leon which agreed with retail opponents of the rule and overturned most of it.

But while Leon had erred in overturning the debit rule, he did so because he wanted the Federal Reserve to move even farther away from a proper interpretation of the law than it already had, the organizations argued.

“The Durbin amendment provides for interchange fees that cover the cost incurred by a debit-card issuer with respect to an electronic debit-card transaction,

plus a reasonable return,” the trade groups said in the brief. “The board, however, promulgated a Final Rule that, while an improvement over its first proposal, improperly sets interchange fees equal to only a portion of the issuer's transaction cost and thus fails to incorporate a reasonable rate of return above that cost. “

Leon's interpretation of the law and the final rule is even worse, the organization's argued, because it “gives undue weight to selective pre- and post-enactment

statements of a single senator,” and ignores decades of legal precedent which affords regulated parties a reasonable return.

“The district court's ruling thus is not only erroneous, but also gives rise to serious constitutional questions,” CUNA and NAFCU wrote.

CUNA and NAFCU joined with the bank associations to support the appeal because, as much as they opposed the current rule, they said it was better than one crafted in accord with Leon's opinion.

“The district court's ruling, if upheld, would have a disastrous effect on credit unions' capacity to ensure their 96 million members receive the services they need,” said Carrie Hunt, NAFCU's general counsel and Paul Gentile, Executive Vice President for Strategic Communication at CUNA echoed her concerns. 

“The District Court's order compounded the already negative consequences of the Durbin Amendment and the Fed's implementing rules.  Judge Leon's order would result in a windfall to merchants amounting to many billions of dollars at the expense of the institutions that have invested to create America's payment networks,” he said.

No date has been set for oral arguments in the case. Attorneys for the retailers have until Nov. 20 to file their arguments.