A recent court ruling imposing a new interpretation of the Federal Reserve’s standard for setting debit card interchange fees would be “extraordinarily harmful and needlessly disruptive to the diverse set of stakeholders in the debit card market — including consumers and merchants,” American Bankers Association and six bank and credit card associations said in a court filing.
The associations last week filed an amicus brief in a lawsuit brought by a group of North Dakota retailer trade associations and truck stop Corner Post, who alleged the Fed exceeded its statutory authority to set interchange fees that are “reasonable and proportional to the cost incurred by the issuer with respect to the transaction.” U.S. District Court Judge Daniel Traynor sided with the plaintiffs in a ruling last year. Since then, a federal judge in Kentucky came to the opposite conclusion in a similar case, ruling that the regulation at the center of both lawsuits – Regulation II – is not contrary to law, nor is it arbitrary and capricious.
The Fed appealed Traynor’s decision. In their filing with the Eighth Circuit Court of Appeals, ABA and the associations noted that the courts have previously rejected many of the same arguments made by Corner Post and the other plaintiffs. They also said that debit card issuers have relied on Reg II and the understanding it reflects that the interchange fee cap should be “reasonable and proportional” to their costs. They asked the appeals court to reverse Traynor’s ruling.
“The district court’s construction of the statute cannot be squared with its text, structure, and purpose, nor with well-established constitutional and statutory interpretation principles,” the associations said. “And the court’s interpretation would produce absurd results, requiring issuers to facilitate debit transactions at a substantial loss — a result that is neither ‘reasonable’ nor ‘proportional.’”
