Fed Appeals Durbin Ruling

Aug. 22, 2013

The Federal Reserve yesterday appealed a federal judge’s decision that voided the central bank’s final rule implementing the Durbin Amendment. The rule, which capped debit interchange and codified network routing requirements, was overturned three weeks ago by Judge Richard Leon, who called the Fed’s process “fundamentally deficient” and said the $.21 per-transaction cap exceeded Congress’s intent. Retailers had initiated the suit after the final rule went into effect two years ago.

While Leon had blasted the Fed at a hearing last week for not beginning to write an interim rule, the decision to appeal could mean the current rule will stay in effect throughout the appeals process. The Fed asked the court to keep the current rule in place while attorneys for both retailers and banks agreed that changing their systems to comply with an interim rule that could eventually be abandoned for the original would be costly.

Some experts did not expect the Fed to take this step, even though it’s rare for a court to overturn a rule like this.

“Everything about Durbin is laced with politics,” said a lobbying expert familiar with the case. “So, the Fed’s decision to appeal was not just a matter of legality, there were political and policy considerations as well. I wasn’t sure they had the stomach to go through the process again, even though, as a pure legal matter, I think the rule was well within the Fed’s discretion.”