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It also upheld the Fed’s requirement that at least two networks owned and operated by different companies be able to process transactions on each debit card (12 C.F.R. Part 235). Merchant trade associations challenged the rules, arguing the Fed did not correctly interpret the statute, and the rules did not go far enough.
In reversing the district court’s grant of summary judgment in favor of the merchant groups, the court of appeals determined the Fed’s rules were based upon reasonable constructions of the statute.
The rules arose from the so-called Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (15 U.S.C. §1693o-2). It amends the Electronic Funds Transfer Act to require that interchange fees are “reasonable and proportional” to issuer costs in connection with the transaction.
It requires the Fed’s board to consider incremental costs incurred by the issuer for its role in the authorization, clearance, or settlement of a debit transaction (“ACS costs”), but not other costs incurred not specific to a particular transaction. It also permits the board to allow for certain fraud prevention costs.
Additionally, the Durbin Amendment requires the Fed to establish standards for determining whether these requirements are met.
The merchant groups argued the Fed was permitted to consider only incremental ACS costs in setting the interchange fee, and the district court agreed. However, the court of appeals concluded the statute provided the Fed with greater discretion. Notwithstanding, it remanded the treatment of transaction monitoring costs back to the Fed to provide further explanation.
Click here to read the entire Legal column within the June/July edition of Credit Union Digest on Page 17, including commentary on questions of federal jurisdiction, as well as the latest California minimum wage requirements.