Aug. 19, 2013 – A federal district court judge will hear from the Federal Reserve Wednesday on the feasibility of issuing an interim final rule reducing the federal debit interchange fee cap and revising network requirements in light of the court’s July 31 ruling vacating the Fed’s current rule.
In addition to the fee cap and network non-exclusivity, Judge Richard Leon has, for the first time, also raised the issue of remedy: whether card issuers should be required to refund to merchants a good portion of the fees they have collected on debit interchange transactions since the Fed’s final rule took effect.
Leon issued an opinion July 31 declaring the Fed’s current debit interchange rule invalid; he stayed his decision but only intends to do that for a brief time. He has ordered Scott Alvarez, general counsel for the Fed Board, to be ready to discuss in detail the Fed’s plan for an interim final rule during a 2 p.m. hearing this Wednesday.
Leon’s ruling says the Fed did not carry out the law with its debit interchange rule. He said the Fed considered factors in setting the debit interchange fee cap that it was not allowed to consider under the Dodd-Frank Act. He also said the Fed’s provisions on network non-exclusivity were inadequate.
Carrie Hunt, NAFCU’s senior vice president of government affairs and general counsel, provided members a thorough overview of last week’s hearing in a video report; another is planned to brief members on results of this week’s hearing.
Hunt says there are “strong legal arguments” that can be made against opening up the issue of refunding fees since it has never come up before throughout this case. But, as she said early on, the financial industry can pretty well expect to see a marked reduction in the fee cap applied to card issuers with $10 billion or more in assets; and requirements that all debit-card issuers and their networks make two methods of authentication available for each signature and PIN transaction.
Additional key dates in this case include:
Aug. 28: Briefs on an interim rule are due to be submitted by this date. Parties to the amicus brief filed in this suit – including NAFCU – will be able to file.
Sept. 16: Briefs on the issue of remedy – whether card issuers with $10 billion in assets or more will be required to refund debit interchange fees collected under the current rule – are due.
Any talk in this week’s hearing could address the timing of an interim rule, what it will likely contain and timing of implementation. “NAFCU is in contact with the Federal Reserve, NCUA and members of Congress in its effort to produce the best result possible for its members,” Hunt said.