On August 6, the U.S. District Court for the District of North Dakota granted the plaintiff’s motion for summary judgment and denied the Fed’s cross-motion for summary judgment. The court found that Regulation II, which sets debit card interchange fee standards under the Durbin Amendment to the Dodd–Frank Act, exceeded the Fed’s statutory authority.
The court concluded that the Durbin Amendment did not grant the Fed “a blank check of discretion” and prohibited the inclusion of additional cost considerations. As a result, Regulation II was vacated, but the court stayed its order pending resolution of any appeal to the 8th Circuit. The order does not affect the Fed’s authority to engage in a rulemaking to implement the Durbin Amendment.
The Durbin Amendment requires that interchange fees for electronic debit transactions “be reasonable and proportional to the cost incurred by the issuer.” Congress authorized the Fed to issue regulations to implement this directive. In 2011, the Fed issued a rule adopting a flat fee cap of 21 cents per transaction plus an ad valorem adjustment and a fraud prevention adjustment to compensate issuers for steps taken to combat fraud. This rule was immediately challenged, but it was ultimately upheld by the D.C. Circuit.
This separate lawsuit was brought by a retailer in a district court in North Dakota. The plaintiff challenged Regulation II under the Administrative Procedure Act, arguing that: (i) the Fed improperly included prohibited costs in the interchange fee standard; and (ii) the regulation established a universal fee cap instead of tailoring fees to each issuer and transaction. The plaintiff also asserted the regulation was arbitrary and capricious because the Fed did not adequately consider differences between traditional checking systems and electronic debit transactions, and did not base the fee standard on actual costs incurred by issuers.
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