Emergency Court Intervention Sought To Block Fed’s Debit Rule

Register now

SIOUX FALLS, S.D. – Credit unions and banks urged a federal appeals court here to act quickly to block the Federal Reserve’s implementation of debit card caps, which they insist will break thousands of credit unions or banks.

CUNA and the American Bankers Association told the court Friday the Fed’s December proposal would slash their debit fees by 80%, or some $12 billion, amounting to a “confiscatory” taking from them by the federal government. NAFCU, the Consumer Bankers Association, the Independent Community Bankers Association and the Financial Services Roundtable also signed on to the court filing.

The credit union and bank groups are asking the U.S. Court of Appeals for the Eight Circuit to reverse a lower court ruling and to issue a temporary injunction blocking the Fed, in a challenge to the debit rule brought by Minnesota’s TCF Bank.

The groups have asked for an expedited appeal in the case because the Fed is expected to issue a final rule on the debit cap any day.

The credit unions and banks argue that because of the bank’s and credit unions’ importance to the economy their regulation by the Fed should be viewed in the same way as public utilities are regulated and subject to rate-setting by government. As public utilities they should be afforded the same rational oversight on fees as, say an electric power provider or water company, the groups assert.

“The issue is extraordinarily important, and this Court’s decision could have far-reaching effects,” the credit unions and banks wrote in their amici brief. “ Under the district court’s holding, the government would be free effectively to regulate an industry out of existence by intervening in an otherwise free market and dictating that prices for goods or services be set far below cost; the Constitution would preclude such action only if the government were regulating a public utility or other entity that is compelled to provide a good or service to the public. Fortunately, for the sake of private enterprise in the United States, this is not the law.”

This argument was rejected in April by the lower court, which denied the bank’s bid to block the Fed from acting. The lower court ruled that only public utilities may invoke the protection of the confiscatory-rate doctrine.

The court sais because the government does not require TCF to issue debit cards and because, in the court’s view, TCF does not bear “the hallmark of a classic utility,” that only rational basis scrutiny was appropriate and that the Durbin Amendment mandating the debit cap was “likely to satisfy rational basis review.”

But the credit unions and banks argued they are “sufficiently akin to public utilities in these respects that they should be entitled to the same constitutional protections.”

The Fed, in arguing against a judicial restraining order, told the lower court that it is impossible for the credit unions and banks to argue about the harm the rule will inflict because they have yet to pass a final rule.

For reprint and licensing requests for this article, click here.