Fed defends its final rule on interchange

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Dec. 5, 2013 – The Federal Reserve Board filed an appeal brief Wednesday in the U.S. Court of Appeals for the District of Columbia Circuit defending its interpretation of the Electronic Fund Transfer Act in its final rule on debit interchange fees and network exclusivity provisions.

The Fed, in appeal of a suit filed by merchants challenging the Fed’s debit interchange rule, argued that its interpretation of the standard for assessing whether interchange fees are “reasonable and proportional” was proper under the EFTA. Further, the Fed maintained that it has fully and faithfully implemented the EFTA Sections in its final rule as they apply to network exclusivity and that the merchants have failed, in their appeals brief, to identify any unlawful restriction imposed by issuers or networks.

The merchants support federal district court Judge Richard Leon’s decision in July to vacate the Federal Reserve’s rule on the debit interchange fee cap. The Fed was responding to the merchants’ appeal brief filed in November; oral arguments are scheduled for Jan. 17.

“The Merchants fail to identify a single network or issuer restriction that the Rule allows in violation of the statute, or to demonstrate that the Board’s interpretation of the fee standard provisions at issue are beyond the Board’s interpretive authority provided by Congress,” the Fed wrote. “Because the Board’s Final Rule is consistent with a reasonable interpretation of the statute, it should be upheld.”

The Fed also points out that Congress left a “statutory gap” for the board to use its discretion in considering non-prohibited costs beyond authorization clearance and settlement charges.

When the Fed submitted its latest brief to Leon in October, NAFCU and other amici also filed a brief in favor of overturning Leon’s ruling. NAFCU supports raising the current cap on debit interchange fees in order to preserve credit unions’ ability to receive income on card services and recover costs incurred in transactions.

The Fed’s final rule will stay in place pending the appeal. The rule limits debit interchange fees to 21 cents per transaction plus 1 cent for fraud costs. This cap applies to debit card issuers having more than $10 billion in assets. The rule also sets prohibitions against network exclusivity that apply to all card issuers. Leon said the current cap was too high and that the nonexclusivity provisions are inadequate.

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