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From Banking and Finance Law Daily, August 19, 2014

Supreme Court asked to weigh-in on Fed’s swipe fee rule

By John M. Pachkowski, J.D.

A group of trade associations and retailers, led by NACS, have filed a petition for a writ of certiorari with the U.S. Supreme Court to determine whether the Federal Reserve Board properly implemented the Durbin Amendment’s interchange fee limitations—15 U.S.C. §1693o-2—when the Fed issued regulations permitting banks to recover their fixed costs of operating debit card programs. NACS, formerly the National Association of Convenience Stores, was joined in the petition by the National Retail Federation, Food Marketing Institute (FMI), National Restaurant Association, Miller Oil Company, Inc., and Boscov’s Department Store, LLC.

Lower court proceedings. In filing the petition, NACS is seeking a reversal of a U.S. Court of Appeals for the District of Columbia Circuit decision that found rules limiting debit card interchange fees and network exclusivity provisions are reasonable interpretations of the Dodd-Frank Act. The appellate court sided with the Fed’s arguments that the language of the interchange fee statute was ambiguous and that the agency’s reasonable interpretations were entitled to judicial deference as required by Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc. (see Banking and Finance Law Daily, March 21, 2014).

The Court of Appeals reversed a “strongly worded” opinion issued by U.S. District Court Judge Richard Leon in which he found the statute’s language to be unambiguous and that the Fed had disregarded the statute’s requirements. In addition, the judge went beyond enjoining enforcement of the rules to vacate them and order the Fed to adopt new rules (see Banking and Finance Law Daily, July 31, 2013).

Significant legal error. In arguing that the Court should grant certiorari, NACS claims that the appellate court “committed a significant error” in upholding the Fed’s interchange rule. NACS continued that the Court’s intervention is required since the interchange rule is invalid under the Chevron framework. The petition added that if the Court denies review, the interchange rule “will unlawfully permit banks to inflate by billions of dollars each year the interchange fees they charge American merchants and, in turn, American consumers. NACS concluded, “This Court should not countenance the Board’s disregard of Congress’s will.”

Blunted positive impact. Commenting on the petition, NACS President and CEO Henry Armour said, “Unfortunately, the Fed overrode the language of the law and blunted the positive impact of reform. We need the Supreme Court to decide this case so that American merchants and their customers stop paying billions of dollars more than they should per year to the big banks.”

FMI President and CEO Leslie G. Sarasin said, “Congress originally passed a law that was designed to lower swipe fees paid by customers and merchants, but the final Federal Reserve rule disregarded the legislative language and actually raised rates on many transactions.” She added. “We urge the Supreme Court to agree to hear this case recognizing that the Fed’s rule has a significant impact on anyone who uses or accepts a debit card, including shoppers, merchants of all sizes and any other non-merchant entity responsible for the 50 billion debit card transactions each year.”

Companies: Boscov’s Department Store, LLC; Food Marketing Institute; Miller Oil Co.; NACS; National Restaurant Association; National Retail Federation

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