Decision will have a potentially devastating impact on the ability of small debit card issuers, particularly credit unions, to continue offering this vital payments service to their members and customers, says the Credit Union National Association.
(From the Credit Union National Association)
WASHINGTON (UPDATED: 7/31/13, 12:34 p.m. ET)--The U.S. District Court for the District of Columbia issued a decision today striking down the Federal Reserve's price caps on debit interchange fees. U.S. District Court Judge Richard Leon said in his ruling that the Fed did not follow congressional intent when it implemented the cap and other changes imposed by what is known as the Durbin amendment.
Credit Union National Association General Counsel Eric Richard said, "This decision will have a potentially devastating impact on the ability of small debit card issuers, particularly credit unions, to continue offering this vital payments service to their members and customers.
"The decision, no doubt, will challenge credit unions to continue their debit card programs without incurring drastic cuts in revenue, or imposing additional fees on their members--the last thing that credit unions want to do.
"Right now, the current debit interchange system remains the same. However, the court has signaled it is going to consider the current system further in the weeks to come. We are investigating our legal options on behalf of credit unions going forward."
CUNA and a broad coalition of trade groups filed an amicus brief in the case in April 2012 refuting the merchants' suit charges that the Fed cap is too high. The brief countered that it is, instead, too low and does not allow debit card issuers to cover their costs and a reasonable rate of return on their investments.
The joint brief described how small and large financial institutions are harmed by the Fed's tight fee ceiling. It underscored that consumers have not seen any pricing benefits for products and services promised by the merchants when they were fighting for a government-set cap on what card issuers may charge for their services.
The Fed was charged with setting the debit fee limit under provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Fed's final rule, which became effective in October 2011, caps debit interchange fees for issuers with assets of $10 billion or more at 21 cents.
However, Leon's ruling Wednesday said that Congress spoke clearly and decisively and the Fed's interpretation was not reasonable. His ruling vacates the Fed's interchange transaction fee and network non-exclusivity regulations and remands the rules back to the Fed.