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Fed Brief Says Interchange Rule Faithful To Law's Intent
WASHINGTON (10/22/13)--In a brief filed Monday, the Federal Reserve argued that it correctly followed congressional intent when it wrote regulations implementing the debit card interchange cap required by the Dodd-Frank Act, and should be entitled to deference as a result.

The brief was filed in the U.S. Court of Appeals for the District of Columbia Circuit. It follows Judge Richard Leon's July decision, in which he ruled that the Fed did not follow narrow congressional intent when it implemented the cap. The Credit Union National Association, in partnership with a group of trade associations representing all types of financial institutions, also filed a brief in this case on Monday. (See News Now story: CUNA Brief: Fed Interchange Rule Bad, Court Ruling Worse.)

In its brief, the Fed argued that it reasonably interpreted the network exclusivity provisions included in the Dodd-Frank Act, "which direct the Board to prohibit 'an issuer or payment card network' from restricting the number of networks on which a debit card transaction may be processed to a single network or to only affiliated networks."

The Fed also argued that when it set the new interchange fee, it correctly:
  • Used issuers' incremental costs related to authorizing, clearing, and settling debit card transactions as a baseline;
  • Excluded other costs which are not specific to a particular electronic debit transaction; and
  • Considered the functional similarity between electronic debit and checking transactions.
The Fed briefing also questioned merchants' insistence that multiple routing options for each method of authentication enabled on a card should have been required.


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