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Monday, March 24, 2014

Appeals Court Rejects Retailer Challenge to Interchange Rule

The D.C. Circuit Court of Appeals on Friday overturned a lower court decision that would have required even lower debit interchange fee caps than the Federal Reserve’s rule calls for. The three-judge panel rejected arguments from the retail industry in finding that the Fed’s rule “generally rests on a reasonable interpretation of the statute.”

Specifically, the appeals court upheld the Fed’s use of fixed costs, network processing fees and fraud loss costs in the interchange fee cap calculation, although it said the Fed would need to provide further justification for its inclusion of transaction monitoring costs. The court also found that the Fed followed the Durbin Amendment in its “anti-exclusivity” provision on network choice.

In addition, the court noted that the statutory language put the Fed and the courts “in a real bind,” adding that the “poorly drafted” Durbin Amendment is “confusing and its structure convoluted.” Indeed, the court said that the retailers’ argument depended on resolving an apparent discrepancy between word choice and proper grammar by “stuffing punctuation to the bottom of the interpretive toolbox.”

On the topic, ABA President and CEO Frank Keating stated:
We applaud the Court for its decision today, which reverses a lower court’s ruling that would have harmed banks of all sizes and made it more difficult for institutions to serve their customers. While this decision is a welcomed outcome, the fact remains that the underlying policy -- the Durbin Amendment -- has not accomplished its goal of lowering prices for consumers. It has only served to increase the bottom line for big box retailers.
Read the appellate decision.

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