WASHINGTON The Federal Reserve was given a week to tell a federal judge its position on immediately rewriting Durbin amendment regulations setting debit card swipe fees in the wake of last month’s ruling that the current cap is unlawful.
U.S. District Judge Richard Leon today ordered Fed General Counsel Scott Alvarez to appear in his courtroom on Aug. 21 after a lawyer for the Fed said it hadn’t made any decisions on how to replace the current rule, or whether to appeal last month's ruling. “They’ve had their briefings,” Leon said. “They know what the state of play is. It’s time to make decisions.”
Today’s hearing comes two weeks after retailers were handed a big victory by Judge Leon in Washington, who said merchants were overcharged billions of dollars under an unlawful swipe fee cap set by the Fed, which set the cap too high. The cap only applies to dbeit transactions at credit unions and banks over $10 billion) but credit unions and banks claim it has pushed average rates down for everybody else too--even as surging volume more than makes up for lower rates.
"This is a very fast turn-around for the Fed which will, on the one hand, eliminate any uncertainty about the future but will also potentially mean an impact on credit unions sooner than later," said CUNA President Bill Cheney.
Last month's decision, unless overturned on appeal, will force the Fed to revisit rules that banks and credit unions said would cost them 45% of their swipe-fee revenue. Card issuers collected about $16 billion annually from debit fees before the Fed’s regulation, with credit unions earning as much as $4 billion.
The Judge also opened the door for credit unions, banks and credit-card companies to repay retailers millions of dollars in transaction fees earned on swipe fees.
Judge Leon admonished the Fed for its inability to answer a question about its options for rewriting the rules.
The Fed's attorney said the central bank has a range of options available if it foregoes an appeal and rewrites the interchange rule, but no decisions have yet been made. That position provoked the ire of Judge Leon, who said the Fed already should have made a decision.
"They can come from Nantucket, they can come from where they are on vacation" and make a decision, the judge said, referring to the Fed's board of governors. He also insisted that the Fed's top lawyer, Scott Alvarez, be prepared to answer his questions at another hearing next week.
In his July 31 ruling, Leon said that the Fed considered data, like fraud losses, it wasn’t supposed to use under the Dodd-Frank Act in setting the cap on debit-card fees, known as swipe fees, at about 21 cents, and neglected to bolster competition in card networks.
Judge Leon is considering whether the Fed’s rule, in effect since October 2011, should remain in place until the central bank drafts new regulations or interim standards.
While noting the Fed has 60 days to appeal his ruling, Judge Leon said he wouldn’t wait that long to make a decision about a new rule. “I’m not going to sit around and do nothing for 60 days,” said the Judge.
The Judge also asked lawyers for both sides to submit filings on whether the retailers could be reimbursed for their overcharges.
