WASHINGTON (9/20/13, UPDATED 9:54 a.m. ET)--The existing Federal Reserve rules implementing the interchange fee cap and network exclusivity provisions required by the Durbin Amendment will stay in place throughout an appeals process as the Fed seeks to overturn a July court ruling that declared those rules illegal.
So says Judge Richard Leon of the U.S. District Court for the District of Columbia who, of course, is also the judge that ruled the Fed did an inadequate job of implementing the Dodd-Frank interchange rule in 2011. Leon criticized the Fed for going beyond congressional intent when writing the rule by including too many items considered to be costs for card issuers.
Credit Union National Association President/CEO Bill Cheney said of today's decision, "CUNA continues to believe that the Fed's existing rules are far from perfect for credit unions, but in striking down the rule this summer, Judge Leon injected extreme uncertainty into the payment card system, which needs to continue efficiently serving merchants and consumers pending the outcome of this appeal.
"CUNA is relieved that there is an order in place that will provide that certainty for now. For credit unions, keeping the existing rules in place pending the appeal limits potentially needless compliance obligations, given the Fed's existing rules could ultimately be upheld. CUNA will now move forward in strong advocacy for credit union interests as the appeal is heard before the D.C. Circuit."
CUNA, with its coalition partners, filed a brief with the court calling on Leon to maintain current interchange regulations as the case moves forward. To do otherwise, CUNA noted, would "harm all affected interests, including consumers, and threaten the effective functioning, stability, and security of the electronic debit-card payments system."
The defendant Federal Reserve and plaintiff merchants coalition also urged the court to keep the current rule during the Fed appeals process.
The Fed, at that time, 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."
Credit unions under $10 billion are exempt from the fee cap rule, but not the network exclusivity provisions. If Leon's ruling stands on appeal, those provisions would require two unaffiliated PIN and two unaffiliated signature networks not only for each card, but for each transaction.
As to the fee cap, the current Fed rule limits debit interchange fees for issuers with assets of $10 billion or more to 21 cents, and allows an additional five basis points per transaction to be charged to cover fraud losses. An extra penny may be charged by financial institutions that are in compliance with established fraud prevention standards.
CUNA maintains all credit unions, including those under $10 billion in assets, are negatively affected by these price controls in the marketplace.