A coalition of merchants and retailers has requested that the U.S. Supreme Court weigh in on interchange fees.
In March, the D.C. Circuit Court of Appeals upheld the rules promulgated by the Board of Governors of the Federal Reserve capping fees on debit interchange and establishing antiexclusivity requirements for payment card networks.
The rules, issued by the Board of Governors at the direction of the Dodd-Frank Wall Street Reform and Consumer Protection Act’s Durbin Amendment, imposed a cap of 21 cents plus 0.5 percent of a transaction’s value when consumers use a debit card.
Trade groups, including the National Association of Convenience Stores (NACS) and the National Retail Federation, sued. A federal district court struck down the rules, writing that “the Board completely misunderstood the Durbin Amendment’s statutory directive and interpreted the law in ways that were clearly foreclosed by Congress.”
But a unanimous three-judge panel reversed the ruling, finding the rules reasonable.
Refusing to give up the fight, the NACS, joined by other trade associations and retailers, filed a writ of certiorari asking the Justices to consider whether the Board of Governors properly implemented the Durbin Amendment’s interchange fee limitations by allowing banks to recover their fixed costs of operating debit card programs. (The groups declined to appeal the ruling on antiexclusivity requirements.)
“This Court should not countenance the Board’s disregard of Congress’s will,” the groups wrote, calling the D.C. Circuit’s ruling “a significant legal error” with “multi-billion dollar consequences for millions of parties every year.”
The petition makes three arguments in favor of Supreme Court review: that the Durbin Amendment prohibits the interchange fee standard adopted by the Board; the federal appellate panel afforded the Board the incorrect standard of deference; and the “surpassing importance” of the issue necessitates the Court’s intervention.
The Durbin Amendment includes a prohibition on banks charging interchange fees for costs “which are not specific to a particular electronic debit transaction.” That language is unambiguous, the petitioners told the Court, and should not include the fixed costs of computer equipment and software that make it possible to provide debit card services. Such costs are not specific to a particular transaction any more than costs specific to a particular meal include the cost of a stove, they told the Justices.
Too much deference was given to the Board of Governors’ rulemaking authority because the D.C. Circuit analogized the process to ratemaking, the groups wrote. Instead, the Board should have been denied any level of deference, as its interpretation of the Durbin Amendment was “incoherent” and conflicted with the plain language of the statute.
Lastly, the NACS emphasized the importance of the issue and the “massive” financial effect of the rule, which applies to more than 30 billion regulated transactions a year. “The D.C. Circuit’s approval of the Board’s egregious misinterpretation of the Durbin Amendment substantially harms a large swath of American businesses, as well as American consumers, every single day,” the petitioners wrote.
To read the certiorari petition in NACS v. Board of Governors of the Federal Reserve System, click here.
Why it matters: Overturning the rules promulgated by the Board of Governors of the Federal Reserve capping fees on debit interchange and establishing antiexclusivity requirements for payment card networks could substantially change the impact of the Durbin Amendment. Will the U.S. Supreme Court take up the issue of interchange fees? The answer will remain unknown until the Federal Reserve files its reply brief (due September 19) and the Justices add the case to their list for consideration.
