News

Debit fee cap hearing a fiasco for Fed attorneys

August 15, 2013

On Aug. 14, attorneys for retail associations and the Fed were to have discussed a timeline for setting a lowered debit interchange fee cap. This discussion did not happen, and the presiding judge was not happy about it.

A little background: On July 31, District Court Judge Richard Leon of the U.S. District Court in the District of Columbia had ruled in favor of retail association plantiffs in the interchange case.

Merchants claimed that the Fed had disregarded Congress' intent in passing the Durbin amendment, legislation that aimed to protect consumers by lowering debit interchange fees paid by retailers (who would presumably pass the savings on to customers). A federal regulator had proposed a fee of 12 cents; the Fed determined that 21 cents was fair, based on banks' costs for providing debit card service. 

After finding for the retailers, Leon issued a temporary stay on his ruling, leaving the 21 cent fee in place at least until Wednesday, Aug. 14, when a hearing would determine the procedure and timeline for revising it.

When Fed attorneys showed up at the hearing unprepared to discuss a timeline, Leon was "irate," CU Times said.

"The Fed does not have the luxury of weeks to come up with a decision," he told the Fed attorneys. "They can come back from Nantucket or off vacation to deal with this, or do it by conference call."

Leon then gave the Fed one more week to come up with a plan.

The question remains whether the Fed might appeal Leon's decision. An Aug. 13 CU Times story said that a financial research firm had put the chance of an appeal at 65–70 percent. 

On one hand, the firm said, the Justice Department might decide not to pursue an appeal, believing that the Fed's case was too weak. On the other hand, Justice might decide to move ahead on an appeal in order to protect the Fed's prerogative to interpret the laws it was charged with enforcing.

Another question is whether the court has the authority to set damages to be paid to merchants in remuneration for their overpayment of debit interchange fees. Attorneys for both sides have until Aug. 28 to file briefs on that matter. The court will hear arguments from Fed and retailer attorneys on Sept. 16.

Read more about regulatory issues.