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NEW: Appeals court to closely examine lower court interchange ruling
WASHINGTON (1/17/14, UPDATED: 12:10 P.M. ET)--U.S. Court of Appeals for the District of Columbia Circuit Judges David Tatel, Harry Edwards, and Stephen Williams asked questions at oral arguments today that cast doubt that they will fall in line with a lower court ruling that sought to overturn the Federal Reserve's debit interchange fee cap regulations.

From left, CUNA General Counsel Eric Richard, Deputy General Counsel Mary Dunn and Assistant General Counsel for Special Projects Robin Cook discuss today's interchange arguments outside the U.S. Court of Appeals. (CUNA Photo)
The case is known as NACS, et al. v. Board of Governors of the Federal Reserve System. Based on questions asked of counsel arguing at the hearing, the judges seemed inclined to take a much harder look at U.S. District Court for the District of Columbia Judge Richard Leon's July decision to strike down the Fed's interchange fee cap, Credit Union National Association regulatory staff said. Leon last year put a stay on his decision, pending the outcome of the case.

They heard from the Federal Reserve, a coalition of financial services groups, including CUNA, and merchants.

The merchants have argued that the Fed overstepped its bounds, allowed too many costs to be considered, and set too high of a cap. The three judges seemed to dismiss out of hand the position that merchants took in district court earlier this year. "They seemed to recognize that additional costs can be properly considered under the statute," CUNA General Counsel Eric Richard said.

Lawyers that spoke on behalf of financial services coalition articulately presented credit union concerns, he added.

Merchants brought the case against the Fed in 2012, alleging that the Fed made errors in implementing a final rule that caps debit interchange fees for issuers with assets of $10 billion or more at 21 cents, and allows certain other charges to cover fraud losses and fraud prevention.

CUNA and the coalition in the past have argued that the Fed cap is too low and does not allow debit card issuers to cover their costs and a reasonable rate of return on their investments. The coalition has 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.


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