Federal court rules against interchange fee standard

The Federal Reserve’s current rule limiting the processing fees card issuers can charge retailers to a maximum of 21 cents is too high, according to an Aug. 6 ruling from the U.S. District Court for North Dakota. .Judge Daniel Traynor ruled the current standard under the Durbin Amendment does not comply with the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. He said the current standard does not account for the evolution of payment processing technology and economies of scale, allowing issuers to take higher fees from merchants than what is required to make up for their operating expenses. Traynor’s decision vacates the standard for setting interchange fees under the Durbin Amendment, which applies to banks with at least $10 billion in assets. Traynor also stayed the decision, allowing the Federal Reserve time to file its expected appeal. The Durbin Amendment was implemented in 2011 as an amendment of the Dodd-Frank Wall Street Reform and Consumer Protection Act. In 2023, the Federal Reserve Board proposed lowering the interchange fee cap to 14.4 cents plus 0.04 percent of the transaction from 21 cents plus 0.05 percent of the transaction because issuers’ data indicated their costs had significantly decreased. Traynor’s ruling does not impact that proposal. The case challenging the higher fees was initially filed in 2021 by the North Dakota Retail Association and North Dakota Petroleum Marketers Association, and was later backed by Watford City, N.D.-based truck stop Corner Post Inc. The groups alleged Reg II violated the Administrative Procedure Act and exceeded the board’s statutory authority. Traynor dismissed the case in 2022, finding the plaintiffs couldn’t bring the lawsuit as the six-year statute of limitations on challenging federal rules had already expired under the Administrative Procedures Act. The Eighth Circuit Court of Appeals upheld the ruling, but a 2024 Supreme Court decision found the statute of limitations does not start until a plaintiff is first negatively impacted by a rule. Corner Post opened in 2018, making it eligible to remain a plaintiff. Banking trade groups panned Traynor’s decision and the Durbin Amendment. “Today, a single federal court threatens to limit access to banking services for millions of Americans,” said Consumer Bankers Association President and CEO Lindsey Johnson. “When the Durbin Amendment was passed in 2010, retailers promised to pass cost savings on to consumers — we now have 14 years of data that clearly shows that did not happen.”American Bankers Association President and CEO Rob Nichols said the ruling “allows retailers and merchants to effectively benefit from the superhighway that is America’s debit payment system without having to cover any of the costs needed to maintain, protect and upgrade that system.”