A Humpday Hodgepodge

January 21, 2015 at 8:57 am Leave a comment

Ding Dong, the witch is dead.

With the Supreme Court’s decision not to hear an appeal by merchants complaining that the Federal Reserve’s interchange fee cap is too high – and I thought we lived in a free market system – the latest round of merchant interchange litigation has come to an end. Remember that the litigation never directly impacted your credit union unless you work for one of the relative handful with $10 billion or more in assets. Still, the victory is an important one because of concerns that the interchange cap puts downward pressure on what all issuers ultimately receive.

The litigation came down to how much deference the Federal Reserve should be given by the courts in implementing Durbin’s mandate that it devise an interchange fee cap. The amendment tasked the Federal Reserve with making sure that interchange fees were “reasonable and proportional to the cost incurred by the issuer with respect to the transaction.” It further specified that “in making this determination distinguish between … the incremental cost incurred by an issuer for the role of the issuer in the authorization, clearance, or settlement of a particular debit transaction, which cost shall be considered …, [and] other costs incurred by an issuer which are not specific to a particular electronic debit transaction, which costs shall not be considered.” NACS v. Bd. of Governors of Fed. Reserve Sys., 746 F.3d 474, 480 (D.C. Cir. 2014) cert. denied sub nom. NACS V. BD. OF GOVERNORS (U.S. Jan. 20, 2015).

The merchants argued that the twenty one cent transaction cap was too high because the Board took costs into account that the statute didn’t allow. The Government argued, and the federal DC appellate court agreed, that the statute was less than clear. The Board properly utilized discretion in filling in the congressional blanks. Yesterday’s denial to take up this decision by the Supremes puts an end to this round of litigation. But let’s face it, when it comes to litigation, merchants are like those Taken movies starring Liam Neeson, who, I vaguely recall, used to be a good actor. Even though it seems like the bad guys have taken or killed all his family members, as long as someone is making money off these sequels we haven’t seen the last of them. . .

 Luck Would Have It

While we are on the subject of regulations and litigation, it’s kind of fitting that on the same day the interchange fee litigation ended, the NCUA released a legal opinion explaining why it has the authority to categorize credit unions as either “adequately” or “well capitalized” under whatever risk-based capital framework it imposes on complex (i.e. larger) credit unions.   http://www.ncua.gov/News/Pages/NW20150120Opinion.aspx

The merchants argued that the Federal Reserve Board lacked authority to devise the cap the way it did because the Durbin Amendment was clear enough to be implemented without exercising discretion. Credit unions have suggested to NCUA that it lacks the authority to impose “well capitalized requirements” on complex credit unions – a group that NCUA is now proposing include any credit union with over $100 million in assets – because Congress clearly prohibited NCUA from doing so. NCUA was spooked enough by the argument to go out and get a legal opinion on the subject from the Paul Hastings laws firm. The firm concluded that Section 216 of the Federal Credit Union Act was vague and as a result NCUA had the flexibility to establish requirements for complex credit unions to be considered “well capitalized” under a risk based capital framework, so long as the agency provided “a sufficient explanation” for imposing “a higher and more conservative” capital requirement on complex credit unions.

As Washington Turns

We wouldn’t have to be delving so much into the arcane world of regulatory interpretation if Congress actually passed laws with clear directives. Like estranged lovers, as Congress and the President have drifted apart both have turned to others to meet their needs. The President has turned to Executive Orders for validation of his powers; Congressional Republicans have turned their affections to courts. Anyone hoping for a change to this dynamic was woefully disappointed by the President’s State of the Union address last night. Don’t get me wrong. If you turn on Rachel Maddow every night you loved the speech because it hit all the right liberal notes of what the world would be like if only there were no Republicans. Conversely, if you don’t miss a day of Rush Limbaugh the speech undoubtedly confirmed your worst fears of an impending socialist takeover. But, if you thought that the idea of a State of the Union address was to propose ideas that could actually become law, you were out of luck.

If you want to see just how out-of-whack Washington is, be sure to tune into today’s State of the State address by Governor Cuomo. He will actually propose ideas that can be accomplished in the coming months and occasionally even compliment Republicans without fear of being brought up on impeachment charges.

Entry filed under: Legal Watch, New York State, Political, Regulatory. Tags: , , , .

Are credit scores obsolete? Deflated expectations?

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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