Last Friday, a U.S. District Court of Appeals ruling stripped merchants of their win in round one of a fight contesting debit transaction fee caps and routing rules imposed by the Fed under the Durbin Amendment.
The ruling by U.S. District Court Judge Richard Leon would have forced the Fed to cut interchange fees paid by merchants by more than half, while at least doubling transaction routing options available to them.
In a 38-page opinion written by Judge David S. Tatel, the appeals court faulted Congress for a poorly worded statement of its fee cap intentions, and chastised retailers for a weakly mounted defense of their position on multiple routing options.
If Friday's ruling stands, ATM deployers will finally have some certainty about debit routing requirements — which will finally allow them to move confidently toward a workable routing solution for the implementation of EMV in the United States.
That's a big "if." NACS and its fellow plaintiffs can choose to go one final round against the Board of Governors of the Federal Reserve System and petition the Supreme Court of the United States to take up the case. With billions of dollars in interchange fees at stake, they have not indicated that they are, as yet, ready to throw in the towel.
In a statement, NACS president and CEO Henry Armour left open the SCOTUS option:
Congress did the right thing by trying to make debit swipe fees more competitive and the law did that in spite of the Fed's mistakes. We intend to review all of our options for upholding what Congress did and ensuring that debit swipe fees become more reasonable for convenience retailers and their customers.
In a separate statement about Friday's ruling, National Retail Federation SVP and general counsel Mallory Duncan also indicated a willingness to carry on with the fight:
NRF's work over the past several years led to a cap that cut debit swipe fees in half. That has saved many retailers and consumers billions of dollars but the fees, especially for small ticket transactions, are still far too high. We are reviewing the decision and will determine whether to appeal.
'Congress put ... us in a real bind'
For the court of appeals, determination of congressional intent came down to English usage and punctuation. The court noted:
[W]e think it worth emphasizing that Congress put the Board, the district court, and us in a real bind. Perhaps unsurprising given that the Durbin Amendment was crafted in conference committee at the eleventh hour, its language is confusing and its structure convoluted. But because neither agencies nor courts have authority to disregard the demands of even poorly drafted legislation, we must do our best to discern Congress's intent and to determine whether the Board's regulations are faithful to it.
First was the question of what "incremental" really means, the appeals court said. Tatel wrote that it could refer to "the cost of producing some increment of output greater than a single unit but less than the entire production run," or "the difference between the cost incurred by a firm if it produces a particular quantity of a good and the cost incurred by the firm if it does not produce the good at all."
Next, the court said, was the question of a non-existent comma in the mandate for the Fed to "distinguish between" incremental ACS costs, which the board must consider, and "other costs ... which are not specific to a particular electronic debit transaction."
Constructed with a comma, "other costs, which are not specific to a particular electronic debit transaction," defines all non-incremental ACS costs as "other," and not to be included in Fed calculations.
But Congress didn't use a comma. "Other costs which are not specific to a particular debit transaction" introduces the need for the Fed to "distinguish between" those that are and those that are not.
'Merchants have barely left basecamp'
The court dedicated more than 17 pages of its ruling to the question of the fee cap, but dispensed with the question of routing in fewer than five. In short, the court said:
The merchants have a steep hill to climb. Congress directed the Board to issue rules that would accomplish a particular objective, leaving it to the Board to decide how best to do so, and the Board's rule seems to comply perfectly with Congress's command.
Under the rule, "issuer[s] and payment card network[s]" cannot "restrict the number of payment card networks on which an electronic debit transaction may be processed" to only affiliated networks — exactly what the statute requires.
'The principal fallacy with the Merchants' argument,' the Board aptly explains, 'is that they selectively view transactions only from their own perspective and only after the point at which the merchant itself or the consumer may have elected to restrict certain routing options [whereas] section 920(b) speaks only in terms of issuer and payment card network restrictions' imposed prior to initiation of any particular debit card transaction.
In sum, far from summiting the steep hill, the merchants have barely left basecamp. We therefore defer to the Board's reasonable interpretation of section 920(b) and reject the merchants' challenges to the anti-exclusivity rule.
The case is NACS v. Board of Governors of the Federal Reserve System, U.S. Court of Appeals for the District of Columbia, 13-5270.
Read the entire appeals court ruling here.
Read the entire lower court ruling here.
photo: paris on ponce & la maison rouge
Suzanne’s editorial career has spanned three decades and encompassed all B2B and B2C communications formats. Her award-winning work has appeared in trade and consumer media in the United States and internationally.