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What's Next On Interchange?
WASHINGTON (8/13/13)--The next development in the battle surrounding the Federal Reserve's debit interchange rule will take place on Wednesday in the U.S. District Court for the District of Columbia, and the Credit Union National Association will monitor the court action during the hearing that day.
 
The hearing follows District Court Judge Richard Leon's decision that orders the Fed to go back to the drawing board on its rule that implements the so-called Durbin amendment of the Dodd-Frank Act that capped debit card interchange fees and set network non-exclusivity regulations. Leon said the Fed's rule disregarded Congress's intent when deciding how much financial institutions can charge merchants for debit card transactions and that the Fed's cap is too high.
 
Leon vacated the Fed rule, but issued a temporary stay on his own order to keep the current rule temporarily in effect. The judge did not define how long the stay would be in effect, and that is a key issue expected to be a focus of the Wednesday convening.

Although there is no way to predict what Judge Leon might do Wednesday, or what the parties to the case might argue in front of him, there are a number of possibilities, including:
  • Leon can declare the hearing to be simply a scheduling session, charting out deadlines for future briefing and/or dates for future hearings in the case;
  • Only the Fed can appeal the district court's decision. If it decides to appeal, the agency could make that decision public at the hearing, and could also ask for a stay of the ruling throughout the appeals process;
  • The Fed could ask for more time to decide whether to appeal, arguing that there has been inadequate time to make that determination at this time; or
  • The Fed could announce that it is in the process of developing a new rule and could ask the court to continue the stay long enough to approve the new rule and make it public.
CUNA has met with a broad coalition of financial industry representatives to develop a response strategy and approach to the interchange decision. CUNA has also detailed to Fed staff the negative impact the district court ruling would have on credit unions and other small card issuers.
 
CUNA warns that the court's decision will challenge credit unions to continue their debit card programs without incurring drastic cuts in revenue, or imposing additional fees on their members. Credit unions with under $10 billion in assets will still be shielded from the interchange rule. CUNA notes, however, that all issuers, regardless of size, will be affected by the decision and the Durbin regulation with regard to routing and exclusivity provisions.
 
The current Fed interchange standard limits debit interchange fees for issuers with assets of $10 billion or more to 21 cents, and allows an additional five basis points per transaction to be charged to cover fraud losses. An extra penny may be charged by financial institutions that are in compliance with established fraud prevention standards. Most credit unions are exempt from the fee cap.
 
CUNA has developed a new password-protected web page for CUNA and credit union league members. The page provides resources about the litigation and highlights CUNA's efforts, including providing a range of materials that explain the decision and the next steps for credit unions. To access the page, use the link.
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