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Fed Appeals Interchange Decision

on Wednesday, 23 October 2013 in Banking Update

The Federal Reserve has appealed a district court decision that would have vacated the Fed’s Regulation II, which implements the Dodd-Frank Act’s interchange fee cap and dual routing rule for debit cards.


On July 31, 2013, the United States District Court for the District of Columbia issued an opinion granting summary judgment in a suit between various trade associations in the retail industry as well as some merchants and the Board of Governors of the Federal Reserve System. The suit was brought by the plaintiffs to overturn the Board’s Final Rule (designated as Regulation II) setting standards for debit card interchange and transaction fees (“Interchange Fees”) and network exclusivity prohibitions pursuant to the “Durbin Amendment” to the Dodd–Frank Wall Street Reform and Consumer Protection Act. The court found that the Board “clearly disregarded” the intent of Congress in developing the interchange fee limitations and network exclusivity requirements set forth in Regulation II and ordered that the rulemaking be vacated.


In the ensuing weeks, the court took a firm position that the Board would be required to undertake a new rulemaking in an expeditious manner. As of late August, however, the Board had informed the District Court that both the Federal Reserve and the merchant plaintiffs who challenged the regulation would seek an expedited appeal and request that the court of appeals stay the district court’s ruling during pending a final verdict.


Of note was the joint action taken by both the Federal Reserve and the merchants, both of which advocated against requiring the Fed to issue interim regulations while the appeal is pending. The merchants joined the Fed in its request for a stay, urging the court not make the National Association of Convenience Stores “a victim of its own success” by immediately vacating Regulation II, which ostensibly would have resulted in the elimination of interchange fee caps and permitted pre-Durbin unregulated interchange fees to be restored.


Jonathan J. Wegner

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