Oct. 3, 2012 – A U.S. District Court heard oral arguments Tuesday over a suit filed by merchants against the Federal Reserve Board’s debit interchange rule, and NAFCU General Counsel and Vice President of Regulatory Affairs Carrie Hunt was in attendance on behalf of NAFCU.
The suit, NACS v. The Board of Governors of the Federal Reserve System, concerns the merchants’ attack on the Federal Reserve Board’s debit interchange rule. The National Association of Convenience Stores, which is the lead plaintiff in the suit, criticizes most aspects of the Fed’s final debit interchange rule, including provisions on the transaction fee cap and network exclusivity rules. Sen. Richard Durbin, D-Ill., the author of the underlying statutory language in the Dodd-Frank Act, filed an amicus brief supporting NACS’ argument.
NAFCU is part of a coalition of industry groups that filed an amicus brief in the case. The brief, which supports neither the Federal Reserve nor the merchants, argues that the 21-22 cent transaction cap will not cover the costs financial institutions incur for providing a service that essentially guarantees merchants full payment before any fraudulent or nonsufficient funds activity is known.
Some of the key issues covered during the arguments included whether “incremental” versus “fixed” costs were appropriately included in the interchange fee cap and whether the Federal Reserve overstepped the bounds set out by the statute. The coalition argued that ruling in favor of the merchants would greatly exacerbate the Federal Reserve Board’s error in setting the interchange rate too low in that a reasonable rate of return is not permitted in the current fee cap rule.
NAFCU President and CEO Fred Becker noted that credit unions “are already feeling the pinch of the Durbin amendment’s rate cap, despite the exemption for institutions with less than $10 billion in assets.” He added that the government “should not set market prices.”
NAFCU will continue to work with the Federal Reserve to ensure that the rule makers, in addition to the policy makers, understand the full implications of the price cap with the end goal of alleviating as much burden as possible.