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A three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit unanimously reversed an earlier decision of U.S. District Judge Richard Leon, issued in July, that the Fed interchange rules violated the plain text of the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act.
In 2011, the Fed capped large card-issuer debit interchange fees at 21 cents to cover network connectivity, hardware, software, and labor costs, as well as costs related to network processing and transaction monitoring, which put big retailers on the offensive since they thought it was too lenient. "Large card issuers" were deemed as financial institutions with $10 billion in assets or more, which means only four U.S. credit unions would be affected.
However, several credit unions under that threshold have remained skeptical as to how the ultimate rule would play out, as well as how much interchange revenue was likely to drop as a result of market forces in retail and card payments.
The latest court ruling “is a positive turn of events regarding debit interchange fees and will greatly impact credit unions throughout the country,” said Diana Dykstra, president and CEO of the California and Nevada Credit Union Leagues.
By superseding Leon's opinion, this newest ruling removes the chaos and confusion caused when Leon vacated the Fed rule and then issued a stay so the rule remained in place until the appeals process was completed. In this case known as NACS, et al. v. Board of Governors of the Federal Reserve System, a merchants' coalition challenged the Fed's implementation of a Dodd-Frank Act-imposed debit interchange cap as too high. The Credit Union National Association (CUNA) and its partner members of The Clearing House coalition have maintained that the cap is too restrictive.
CUNA General Counsel Eric Richard explained of the judges' opinion, "This decision constitutes an almost total rejection of the merchants' arguments. We hope this will be a first step toward restoring some grounding in reality to the debate over interchange fees, not only in the courts, but also in Congress and at the regulatory agencies."
The National Retail Federation said it is disappointed in the decision, and it is weighing an appeal to the U.S. Supreme Court.