Judge Gives Fed another Week to Discuss New Durbin Rules; Floats Idea of Merchant Refund (Aug. 14, 2013)
Aug. 14, 2013
A judge has given the Federal Reserve another week to answer questions about rewriting the agency’s rule on implementing debit interchange fees and network routing regulations under the Durbin Amendment. The agency’s existing rule was thrown out last month when the district court ruled in favor of merchants in a lawsuit filed against the Fed in 2011. In a hearing today in U.S. District Court in Washington, D.C., Federal Judge Richard Leon set a new hearing for Aug. 21, during which the Fed will be expected to discuss options for issuing a new rule.
During the hearing, Leon also opened up the possibility of banks and credit card companies repaying merchants for fees that were unfairly collected under the current fee caps, according to a report in the Wall Street Journal. Judge Leon ruled in July that the fee limits set by the Fed were too high, but issued a temporary stay on that ruling to give the Fed time to decide if it wanted to appeal the decision or issue a new rule with lower fee caps. The agency’s head lawyer, Scott Alvarez, told the judge today that the Fed has yet to come to a decision, according to the Wall Street Journal. Leon told Alvarez the agency should already have made a progress toward a decision, and gave the Fed until next week to be ready to discuss how much time it needs to rewrite the rule, warning that he could lift the stay and vacate the Fed’s current rule if the agency doesn’t present a viable option to change the current system.
The National Association of Federal Credit Unions (NAFCU), which opposes the ruling, filed an amicus brief in the case and additional briefs are due Aug. 28 on the issue, according to an NAFCU announcement.
The Fed’s final rule on Durbin capped debit interchange at 21 cents per transaction, plus 0.05 percent of the transaction amount to pay for fraud losses and a separate fraud-prevention adjustment of 1 cent to pay for fraud prevention policies and procedures. The 21-cent cap was half of the 44-cent average issuers were receiving for debit transactions in mid-2011, but Leon’s ruling suggested a cap of 7 to 12 cents was more in keeping with Congress’ intent in enacting the Durbin amendment.