Why it matters

With the U.S. Supreme Court’s denial of certiorari, the Board of Governors of the Federal Reserve Board’s interchange rules will stand. The justices declined to hear an appeal from retailers without comment, leaving the D.C. Circuit Court of Appeals opinion in NACS v. Board of Governors of the Federal Reserve System intact. As required by the Durbin Amendment, the Fed adopted rules in 2011 capping fees on debit interchange and establishing antiexclusivity requirements for payment card networks. Trade groups like the National Retail Federation challenged the rule, and a federal district court struck them down. Last March, a unanimous three-judge panel of the D.C. Circuit reversed, finding the rules reasonable. Now that the Supreme Court has refused to hear the case, the rules will stand, reflecting the Court’s reliance on the Fed to have examined the issue and come to a conclusion as to the amount of interchange the agency believes is fair. Retailers will therefore continue to pay the interchange rates set by the Fed unless the agency reassesses the existing fees.

Detailed discussion

In October 2011, the Board of Governors of the Federal Reserve Board issued regulations at the direction of the Dodd-Frank Wall Street Reform and Consumer Protection Act’s Durbin Amendment with two primary changes. First, the Fed established the imposition of a cap on the per-transaction fees banks receive when consumers use a debit card (21 cents plus 0.5 percent of a transaction’s value), and second, the Fed required that at least two networks owned and operated by different companies be able to process transactions on each debit card.

Trade groups, including the National Association of Convenience Stores and the National Retail Federation, filed suit, arguing that both of the rules defied the intent of the Durbin Amendment. Issuers should be forced to route each debit transaction on multiple unaffiliated networks, the plaintiffs argued, and the fee cap should not have included the ability to recover for costs like fraud losses, transaction-monitoring costs, and “fixed” authorization, clearance, and settlement costs.

A federal court judge in Washington, D.C., agreed, granting summary judgment for the plaintiffs and writing that “the Board completely misunderstood the Durbin Amendment’s statutory directive and interpreted the law in ways that were clearly foreclosed by Congress.”

But last March, a three-judge panel of the D.C. Circuit reversed, unanimously finding that the Board’s rule was reasonable.

In part due to evidence presented by the Board that network competition had already increased as a result of the rule change, the court rejected the contention that the rule failed to serve the intent of the Durbin Amendment. “Given that the Board’s rule advances the Durbin Amendment’s purpose, we decline to second-guess its reasoned decision to reject an alternative option that might have further advanced the purpose,” the panel wrote.

The retailers then sought review with the U.S. Supreme Court, filing a petition for certiorari characterizing the federal appellate panel’s decision as “a significant legal error” with “multi-billion dollar consequences for millions of parties every year.” The groups did not appeal the ruling on the antiexclusivity requirements but argued that the Board “disregard[ed] Congress’s will” when it upheld the interchange fee rule.

On January 20, the Court denied the cert petition, letting the D.C. Circuit’s opinion stand and leaving the interchange fees set by the Fed pursuant to the Durbin Amendment in place.

To read the D.C. Circuit Court of Appeals decision in NACS v. Board of Governors, click here.

To read the Order List denying cert, click here.