WASHINGTON (8/1/13)--The Credit Union National Association Wednesday said that a U.S. District Court decision striking down the Federal Reserve's price caps on debit interchange fees will have "a potentially devastating impact on the ability of small debit card issuers, particularly credit unions, to continue offering this vital payments service to their members and customers."
U.S. District Court for the District of Columbia Judge Richard Leon said in his ruling that the Fed did not follow congressional intent when it implemented the cap and other changes imposed by what is known as the Durbin amendment.
CUNA General Counsel Eric Richard said, "The decision, no doubt, will challenge credit unions to continue their debit card programs without incurring drastic cuts in revenue, or imposing additional fees on their members--the last thing that credit unions want to do."
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. The judge left the rule in place for the time being, pending the Fed's issuance of new rules; however, there will be additional briefings to determine the length of time the existing rule can stay in place.
The Fed alone also has a right of appeal. An appeal, if made, would likely have the effect of keeping the existing rules in place pending the outcome.
"In either event, there is not an immediate impact on the current debit interchange rules," Richard said, and added, " 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."
CUNA and a broad coalition of trade groups filed an amicus brief in the case in April 2012 refuting the merchants' suit charges that the Fed cap is too high. The brief countered that it is, instead, too low and does not allow debit card issuers to cover their costs and a reasonable rate of return on their investments.
The joint brief described how small and large financial institutions are harmed by the Fed's tight fee ceiling. It underscored that consumers have not seen any pricing benefits for products and services promised by the merchants when they were fighting for a government-set cap on what card issuers may charge for their services.
The Fed was charged with setting the debit fee limit under provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Fed's final rule, which became effective in October 2011, caps debit interchange fees for issuers with assets of $10 billion or more at 21 cents.