News

Fed to appeal debit fee cap ruling

August 22, 2013

Yesterday, once again, lawyers for the Fed stood before U.S. District Court Judge Richard Leon without a plan for setting a new, lower debit interchange fee cap. However, this time, they had a good excuse: They intend to appeal Judge Leon's ruling.

On July 31, Leon ruled that the Fed had ignored the intentions of Congress when it set the Durbin Amendment-mandated fee cap at 21 cents. A regulator had told Congress that, based on financial institutions' costs to provide debit card service, the fee should be set at just 12 cents.

Last week, Fed lawyers were to have presented a plan and schedule for revising the fee cap, but came to court unprepared to do so, inciting Leon's wrath. He threatened to remove a stay he'd placed on his ruling in order to preserve the status quo until an acceptable cap could be put in place.

Instead, Leon decided last week to leave the stay in place and give Fed lawyers one more week to come up with a plan. Which they did.

According to CU Times, both the Fed and the retail plaintiffs requested an expedited appeals court ruling so that the matter could be resolved as quickly as possible. They also requested — and received — assurance from Judge Leon that he would leave his stay in place pending an appeal.

The Fed could have devised an interim fee cap, however their attorney argued that this would only create additional uncertainty and confusion for merchants and processors.

Not surprisingly, the Fed's decision to pursue an appeal generated a mixed response in post-hearing statements from both sides.

From National Retail Federation spokesman J. Craig Shearman:

We are very disappointed to see the Fed giving in to the banks. The facts are very clear that the Fed set the cap far higher (21.5 cents) than intended by Congress, and the court has insisted that the mistake be fixed as soon as possible.

Instead, the Fed has taken a position that will drag this out while retailers and their customers continue to pay billions of dollars in inflated fees that harm that U.S. economy. We want to see this case resolved today, not next year, so these fees can finally be brought under control.

From Camden R. Fine, president and CEO of the Independent Community Bankers of America:

ICBA is encouraged by the Fed's decision to appeal the U.S. District Court for the District of Columbia's ruling, which would be a disaster for consumers and the community banks that serve them. The fact remains that government price controls on debit interchange benefit giant retailers while resulting in higher costs and a decline in free checking and rewards programs for consumers.

More than a year after the Federal Reserve approved price controls on the debit card market, there is no evidence that merchants have passed on their $6 billion windfall in the form of lower consumer prices. Despite an exemption from some aspects of the rule for smaller financial institutions, the district court ruling will ultimately affect community banks and the communities they serve as the debit card markets react to this government intervention.

From Frank Keating, president and CEO of the American Bankers Association:

The Federal Reserve's decision to appeal is the right thing to do for consumers who value debit cards and the financial institutions that serve them. We're encouraged that all parties have asked for a stay and will seek an expedited appeal, which would avoid the market disruption and consumer harm that other alternatives would cause.