WASHINGTON The Federal Reserve Board and merchants filed separate motions in favor of a stay that would allow the agency's current interchange rule to continue standing temporarily while the issue is decided in court, according to briefs filed with the U.S. District Court on Wednesday.
The two parties of the suit both argued the Fed's rule should be kept in place for the foreseeable future, but for differing reasons.
In the Fed's brief, attorneys argued for maintaining the status quo until the appeal's process is completed. Lawyers for the merchants, however, argued that the stay should be kept in place until the Fed changes its regulation.
"The merchants fully support eventual vacatur of the existing Federal Reserve rules governing debit card interchange fees, but only when a replacement rule is in place properly limiting the interchange fee to the 'reasonable and proportional' amount actually contemplated by the Durbin Amendment," attorneys for the merchants wrote in their 15-page brief.
Earlier this month, U.S. District Judge for the District of Columbia Richard Leon called on both parties to file briefs on the feasibility of making changes to the Fed's 2011 final rule governing caps for interchange fees on debit cards. The Fed has since filed an appeal with the Court of Appeals.
Leon invalidated the Fed's final rule in an order late last month, arguing regulators had ignored congressional intent by setting the ceiling for interchange fees too high. The ruling was a blow to the Fed and bankers, who had come to reluctantly accept the cap, but a victory for retailers that had protested the final rule.
In their brief, attorneys for the merchants warned that if the Fed's current rule was vacated before a replacement rule was put into place, banks which had been subject to the 21-cent-plus-per-transaction fee would "be free to resume their practices of charging inflated interchange fees."
"There would be nothing stopping Visa, MasterCard and their issuing banks from raising interchange fees even higher if the current fee standard were lifted," attorneys for the merchants wrote.
Still, merchants said the Fed should draft an interim final rule with appropriate changes based on the judge's analysis.
"An interim final rule would be the most effective way to deal with the delay caused by the Fed's adoption of a legally deficient rule in this instance," attorney's for the merchants wrote. "The D.C. Circuit has suggested that similar 'timing exigencies' may establish good cause of omitting notice and comment from a rulemaking."
They suggested the court could set a deadline for the Fed to issue an interim final rule.
The Fed disagreed, arguing that issuing an interim final rule during an appeals process could "cause substantial harm to industry participants."
"Issuers, networks, and merchants would have to begin changing their systems in order to comply with the new rule, for example, by reconstructing existing routing arrangements, but these changes would have to be dismantled if the existing regulations are upheld on appeal or if the Court of Appeals were to interpret the statue to impose a different outcome than the district court," the Fed's lawyers wrote in their 20-page brief to the court. "Such costs could not be recovered."
There is no deadline set on when Leon could make a decision on the stay.