D.C. Federal District Court Vacates Federal Reserve Board's Interchange Fee Rule

Federal Reserve Debit Cards

On July 31, the U.S. District Court for the District of Columbia held that the Federal Reserve Board’s 2011 final rule implementing the so-called Durbin Amendment is invalid under the Administrative Procedures Act (APA). NACS v. Bd. of Govs. Of the Fed. Res. Syst., No. 11-2075, slip op. (D.D.C. Jul. 31, 2013). Several retailers and their trade associations filed suit to challenge the Federal Reserve Board’s rule that set a 21-cent cap on interchange fees – the fees payment networks charge merchants on each debit card transaction to compensate the card issuer – and required that only two unaffiliated networks be available for each debit card. The court found that the Board exceeded its authority under the Durbin Amendment by adjusting the fee cap in the Final Rule to include costs (such as network processing fees and fraud losses) that were not permitted to be considered.  The court also concluded that the Board violated the APA by not requiring that all debit transactions be able to run over at least two unaffiliated networks, regardless of authorization method (i.e., signature or PIN). The court further noted that the Board did not provide merchants the ability to choose the network on which they would process transactions.  The court vacated the Board’s interchange transaction fee and network non-exclusivity regulations as arbitrary, capricious or otherwise not in accordance with law and remanded them to the Board for further action. However, in order to avoid disrupting commerce, the court allowed the current regulations to remain in place temporarily. The court invited further briefing on the appropriate length of the stay and whether the current standards should remain in place until they are replaced or the Board should develop interim standards sufficient to allow the court to lift the stay.