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CUNA, Fed, Merchant Briefs Call For Extended Stay Of Interchange Decision
WASHINGTON (8/29/13)--The Federal Reserve and the Credit Union National Association with its coalition partners filed separate briefs with the U.S. District Court for the District of Columbia Wednesday, but each called upon Judge Richard Leon to maintain current interchange regulations as a case on the validity of those regulations moves forward.

In their briefs, both parties argued, in part, that the court does not have the authority to require the regulator to issue an interim rule while the Fed appeals the decision to vacate its debit card interchange cap rule, which has been in effect since October 2011.

Even the merchants coalition--the plaintiff in the case--which also filed a brief yesterday, called on the court to maintain current interchange regulations pending the results of a Fed appeal of the court's overturning its rule.

Leon late last month struck down the Fed's rules on debit interchange fees and routing procedures under the Durbin Amendment. He ruled at that time that the Fed did not follow narrow congressional intent when it implemented the cap and other changes imposed by what is known as the Durbin amendment. Leon earlier this month asked for information on the feasibility of issuing an interim final interchange rule, and asked the Fed for an interim final rule implementation timeline.

The Fed said a stay "will preserve the status quo in the debit card industry while the Board's appeal proceeds, will prevent irreparable injury to plaintiffs in the form of a likely steep increase in interchange fees should the market return to its largely unregulated state prior to the Rule, and will avoid mooting the Board's appeal."

The Fed also argued against developing and releasing an interim final interchange regulation while the court case moves forward. Doing so, according to the Fed:
  • Would be inconsistent with the Fed's view that the original interchange regulation complies with the Electronic Fund Transfer Act;
  • Would likely moot the Fed's appeal of Leon's decision, "irreparably harming the Board's right to seek appellate review on these issues"; and
  • Would result in uncertainty and disruption in the debit card industry.
In their brief, CUNA and coalition partners argue:
  • There is no legal basis for the court to order an independent agency to draft an interim rule.  Under Supreme Court and D.C. Circuit precedent, only the Fed can determine whether and when to issue any such rule;
  • In any event, the court should not require an interim rule. A rush to issue a new, temporary rule will harm all affected interests, including consumers, and threaten the effective functioning, stability, and security of the electronic debit-card payments system; and
  • An order requiring the Fed to issue an interim rule will almost certainly result in more litigation, further muddying the regulatory landscape in an area where parties need certainty. 
For these reasons, the financial institution coalition has asked the court to keep the current Fed regulation in place pending the Fed's appeal. The American Bankers Association, Consumer Bankers Association, Financial Services Roundtable, Independent Community Bankers of America, Midsize Bank Coalition of America, National Association of Federal Credit Unions and National Bankers Association joined CUNA in filing the brief.

Even the merchant's coalition, the plaintiff in the case that also filed a brief yesterday, called on the court to maintain current interchange regulations pending the results of a Fed appeal. Maintaining the stay would "prevent substantial harm" that they believe could occur to the merchants if the protections of the Durbin Amendment's interchange regulation are left entirely unimplemented during the appeal process.

The merchants did, however, support forcing the Fed to issue an interim final rule. The merchant group is comprised of NACS, National Retail Federation, Food Marketing Institute, Miller Oil Co. Inc., Boscov's Department Store LLC, and the National Restaurant Association.

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