Debit Card Litigation Goes From Bad to Worse
A couple of weeks ago, when a Judge ruled that the Federal Reserve Board misinterpreted the Durbin Amendment to the detriment of merchants, I thought things were pretty bad. After yesterday, things are worse than that. Based on what I am able to glean together from several articles and press releases, here are the latest twists and turns in the litigation.
At the hearing yesterday, Judge Leon raised the spectre of merchants having to be reimbursed for the money they would have pocketed had the Durbin Amendment been implemented properly in the first place. I’m presuming, of course, that the merchants would use any windfall to make products cheaper for the patrons who were nice enough to sign those clever petitions urging swipe fee reform in the first place. But I am not holding my breath. We won’t know what the new debit interchange fee is for several months. But considering that the Fed first considered a $0.12 fee cap, think of how expensive it could get to, for example, pay back merchants the $0.09 difference between that cap and the $0.21 cap ultimately imposed. Remember that the cap just applies to credit unions with $10 billion or more in assets, so there’s no need to break into a cold sweat, at least not yet.
We are looking at new debit card requirements being imposed within a few months. It appears that the Judge may seek to impose interim final rules that would take effect as early as October. What isn’t clear to me is whether this timeline would apply to the expansion of processing fee options. Specifically, if the Judge’s ruling remains intact, credit unions will have to ensure that merchants have two signature-based options and two PIN-based options for processing payments. This isn’t the type of mandate that smaller institutions should be given a little more than a month with which to comply.
The Fed may have 60 days to decide whether or not to appeal the Judge’s ruling, but it only has until next week to give the Judge a sense of how it intends to comply with the ruling. Anyone who has read Judge Leon’s decision knows that he can border on sarcastic, at least when it comes to debit card regulations. So, it’s not all that surprising that the Judge ordered government attorneys to be better prepared to explain how they plan on complying with this ruling, even if it means calling in from their Nantucket vacations.
Here’s my biggest takeaway. The Judge’s suggestion that merchants may be reimbursed for the Fed’s allegedly improper implementation raises an important but ultimately esoteric legal dispute about how much lee-way federal agencies enjoy when interpreting Congressional mandates. Simply put, my question for the good Judge would be on what basis can financial institutions be made to reimburse merchants for the improper interpretation of regulations over which financial institutions had no say? Perhaps Judge Leon feels that the American taxpayer should reimburse merchants for the Fed’s failed attempt to interpret the Durbin Amendment to his liking, but as the Judge himself might say, get real!
Hopefully, calmer heads prevail. Can you imagine what rulemaking would turn into if a precedent was established whereby parties could effectively seek legal damages if they can convince a Judge that government drafters misinterpreted statutes to their detriment?
While all this gets sorted out, if I hear one more quote from a merchant complaining about their inability to make money off bubble gum purchases made with debit cards, I think I am going to lose my mind. Last I checked, this is America and if a merchant doesn’t think debit cards add enough value to their business to justify the expense, then they don’t have to accept them.
And then there were three. . .
NCUA announced yesterday that Rick Metsger will be sworn in as the third member of the NCUA Board on August 23, 2013. The board has been a two-man team since Gigi Hyland left in October of 2012. Good luck and God-speed to Mr. Metsger.