Appeals Court Upholds Fed’s Version of Durbin, Blames Congress for Legal Mess
March 24, 2014
A lower-court decision to overturn the Durbin Amendment capping debit interchange fees was reversed on Friday when the U.S. Court of Appeals ruled in favor of an appeal filed by the Federal Reserve Board. The Fed, which was tasked with formulating a rule that implemented the Durbin Amendment after it was passed into law as part of the Dodd-Frank Wall Street reform package in 2010, had capped interchange at 21 cents per transaction. Merchants—initially pleased at the law’s passage—quickly filed suit against the Fed, charging the regulatory body “failed to heed Congress’ call to set fee standards that were reasonable and proportional to the actual cost of a transaction.”
In August, Federal District Judge Richard Leon ruled in favor of the merchants, declaring that the Fed rule implementing the Durbin Amendment should be set aside because it had misapplied the law and set the interchange cap too high. The United States Court of Appeals for the District of Columbia disagreed, saying the Fed’s interpretation of the law was reasonable.
The original decision Judge Leon and the subsequent reversal on Friday by the appellate court each rest on the judges’ respective interpretations of the Durbin Amendment regarding the costs issuers are allowed to recover. While the panel of appellate judges completely disagreed with Judge Leon’s ruling, their written opinion suggested that fault for the disagreement might lie with Congress and a vague law rather than the Fed, the merchants or the lower court.
“We think it worth emphasizing that Congress put the Board, the district court, and us in a real bind. Perhaps unsurprising given that the Durbin Amendment was crafted in conference committee at the eleventh hour, its language is confusing and its structure convoluted,” wrote Judge David Tatel in his opinion. “But because neither agencies nor courts have authority to disregard the demands of even poorly drafted legislation, we must do our best to discern Congress’s intent and to determine whether the Board’s regulations are faithful to it.”
The National Retail Federation, one of the merchant trade groups that brought suit against the Federal Reserve Board, said it is “reviewing the decision and will determine whether to appeal.”