Federal judge dismisses lawsuit against interchange fee standard

A federal judge in Kentucky approved the Federal Reserve’s request to dismiss a lawsuit alleging its current rule limiting the processing fees card issuers can charge retailers to a maximum of 21 cents is too high. .Judge Gregory Van Tatenhove’s Sept. 15 ruling came approximately one month after U.S. District Court for North Dakota Judge Daniel Traynor found the current standard did not comply with the Durbin Amendment. The Kentucky case was filed in 2022 by Frankfort-based Linney’s Pizza. The restaurant sued the Fed, alleging the central bank exceeded its statutory authority under Regulation II because it included “improper costs” in its calculation, resulting in too high of a limit. In his 35-page ruling, District Judge Gregory Van Tatenhove said the rule limiting processing fees was neither contrary to law nor arbitrary or capricious. He ruled the board properly considered the commonalities between debit card transactions and checking transactions as a factor in setting the fee. “What Linney’s Pizza fails to recognize is that the Federal Reserve Board must balance competing considerations, beyond just making comparisons between debit card transactions and checking transactions,” he wrote. The North Dakota and Kentucky decisions could be appealed to appeals courts, according to the American Bankers Association. The ABA filed an amicus brief supporting the Federal Reserve’s position in the case. “Linney’s Pizza’s request, which would require the board to issue a new rule capping interchange fees far below issuers’ transaction costs, puts amicus’s members — that have collectively invested billions of dollars to develop and maintain an efficient, convenient and secure debit card payments system — at great risk,” according to the ABA. Traynor’s decision had vacated 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 the appeal. He said the interchange fee standard did not account for the evolution of payment processing technology and economies of scale, allowing issuers to collect higher fees from merchants than necessary to make up for their operating expenses. The Durbin Amendment was implemented in 2011 as part 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. That proposal has not been implementedThe North Dakota case 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. A federal judge in Kentucky approved the Federal Reserve’s request to dismiss a lawsuit alleging its current rule limiting the processing fees card issuers can charge retailers to a maximum of 21 cents is too high.