A federal appeals court should uphold a district court ruling and reject a retailer lawsuit seeking to overturn how the Federal Reserve calculates debit card interchange fees, as a decision in favor of retailers would result in substantial losses for card issuers with no real benefits for consumers, the American Bankers Association and six associations said this week.
The Durbin Amendment to the Dodd-Frank Act requires the Fed to set reasonable and proportional interchange fees for debit card transactions. In 2022, Linney’s Pizza in Frankfort, Kentucky, sued the Fed in U.S. District Court for Eastern Kentucky over the regulation to implement the law – Regulation II – alleging that the central bank exceeded its statutory authority because it included “improper costs” in its calculation, resulting in too high a fee cap.
The district court — like the D.C. Circuit in 2014 — ruled in favor of the Fed, but the plaintiff has asked the Sixth Circuit Court of Appeals to overturn the decision.
In a court filing, ABA and six groups representing banks and credit unions said that Linney’s Pizza and the merchant trade associations supporting the lawsuit seek to upend settled understanding, as the D.C. Circuit Court of Appeals considered a similar case in 2014 and rejected the same arguments. They also said a ruling in favor of Linney’s Pizza would produce “absurd results” as issuers would be required to facilitate debit transitions at a substantial loss. The associations’ amicus brief was one of approximately a dozen amicus briefs filed in the Linney’s Pizza case, with 10 briefs filed in support of the Fed by a diverse set of organizations.
“Slashing the interchange fee cap would impede issuers’ continued ability to facilitate safe and efficient transactions, hurting consumers,” they said. “And doing so would grant merchants a windfall, as they have demonstrated that they will not pass on any savings to consumers.”
The associations asked the appeals court to affirm the lower court decision.
“Imposing a brand-new interpretation now would be extraordinarily harmful and needlessly disruptive to the diverse set of stakeholders in the debit card market — including consumers and merchants — that have relied on Regulation II and long-settled law upholding it,” they said.
Linney’s Pizza is one of two lawsuits by merchants seeking to rewrite Regulation II. Last year, U.S. District Court Judge Daniel Traynor in North Dakota reached a different conclusion in a lawsuit brought by a group of state retailer trade associations and truck stop Corner Post. The judge also criticized the Durbin Amendment as confusing and not particularly well written. That decision has been appealed to the Eighth Circuit Court of Appeals.
