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Court rules against interchange fees

Tuesday afternoon the U.S. District Court for the District of Columbia ruled in the case brought by the retail and convenience store industries challenging the Federal Reserve’s final rule implementing the price caps on debit interchange fees required under the Durbin Amendment. The court vacated the Fed’s rule finding that the agency disregarded Congress’s intent when deciding how much financial institutions can charge merchants for debit card transactions. Although the court ruled that the Fed’s regulation is illegal under the Administrative Procedure Act, the judge left it in place for the time being, pending the Fed’s issuance of new rules.
CUNA has instant analysis on the court’s decision and a link to the 58-page decision. Obviously, this decision is negative for credit unions, and exacerbates the already harmful consequences of the Durbin Amendment. CUNA, along with a number of other financial services trade associations, weighed in on the case as an amicus (friend of the court). CUNA believes that the Fed’s rule was fundamentally flawed, not because it set price caps too high, but because it set caps too low. Their brief argued to the court that the Fed’s rule contravened the Durbin Amendment by not allowing for cost recovery and a reasonable return on investment.
The Fed has a right of appeal; which likely would have the effect of keeping the existing rules in place pending the outcome of the appeal. There is not an immediate impact on the current debit interchange rules. It should also be noted that the Durbin Amendment’s requirements do not apply to institutions with assets under $10 billion. This is a statutory exemption that will not change as a result of this litigation.   
The LSCU and CUNA will be weighing in with the Fed in an attempt to influence their thinking. CUNA’s lawyers are currently studying the decision carefully.