The ongoing fight over federal debit interchange regulations entered its newest round Oct. 21 as the Federal Reserve filed its appeal that seeks to reverse a July 31 ruling overturning its current rule.
In a strongly worded and often mocking decision, U.S. District Court Judge Richard Leon agreed with retail associations which sued the Fed, saying that the debit interchange cap was too high. Leon also agreed with retailers' argument that federal law required debit issuers to provide two possible payment networks for both debit transactions authorized with a PIN and debit transactions authorized by a signature, effectively doubling the number of payment networks on each debit card.
In its appeal, the Fed argued it had followed the Durbin Amendment in requiring that debit issuers supply two payment networks on each card. The Fed also argued retailers filing the suit had misstated the law's requirement.
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"The Merchants' insistence that the Board should have required multiple routing options for each method of authentication enabled on a card, without regard to limitations imposed by consumers or merchants themselves, is based on a stilted reading of the statutory text and definitions, relies heavily upon an unreliable fragment of legislative
history, and ignores the substantial impact of the Rule," the Fed said in its brief. "Even accepting that the Merchants' view represents one possible interpretation, it is not the best—and is certainly not the only—reading of the statute, which addresses only issuer and network restrictions on routing choice and is silent with respect to limitations caused by merchants or consumers. In these circumstances, the Board's reasonable interpretation must prevail."
The Fed also defended looking at a broader view of costs when considering the cap. The regulator contended that a narrow definition of costs sought by retailers goes against the way Congress had used similar language and similar terms in the past.
The regulator also challenged the idea that it should have considered the intent of the amendment's sponsor, Sen. Richard Durbin (D-Ill), more than other legislators when interpreting the law.
"The Board correctly determined that a single floor statement by the bill's sponsor cannot be used to trump the statutory language chosen by all of Congress, and properly considered the similarities and differences between debit transactions and check," the Fed wrote.
The regulator also contended that its existing rule had accomplished the Durbin Amendment's goal of increasing competition in the debit payments market, observing that its rule had moved millions of debit cards away from being exclusively processed on Visa's networks to being processed on a broader range of networks.
"Indeed, as an expert analysis commissioned by merchants points out, nearly half of all debit cards in circulation—well over 100 million—permitted routing exclusively over
Visa-affiliated networks prior to the implementation of the Rule," the Fed wrote.
"As a result of the Rule, however, those 100 million cards and all others in circulation are no longer subject to the exclusivity agreements that gave rise to this situation … and must now be enabled with at least two unaffiliated networks," the regulator added.
CUNA, NAFCU and seven bank trade associations also filed arguments in the appeal, simultaneously decrying the Fed's original debit interchange rule even as they supported the effort to reverse Leon's opinion.
No date has yet been set for oral arguments in the case. Attorneys for the retailers have until Nov. 20 to file their arguments.
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