ICBA asks court to reverse decision on debit card interchange fee case

ICBA and other groups asked the Eighth Circuit Court of Appeals to reverse a North Dakota district court’s decision holding that the Federal Reserve Board's Regulation II violates the Dodd-Frank Act.

Reg II Background: The Durbin Amendment to the Dodd-Frank Act provides that the amount of any interchange transaction fee shall be reasonable and proportional to the cost incurred by the issuer with respect to the transaction. Since 2011, Regulation II—the regulation at issue in the appeal—has governed how the Fed calculates the debit card interchange fee cap.

Court Case: In the current version of Reg II, the Fed takes into account fixed ACS costs, transaction monitoring costs, network processing fees, and fraud-loss adjustment in calculating the debit card interchange fee cap. The district court held that Reg II violates the Dodd-Frank Act by including some of these costs in the interchange fee cap calculation, a decision that would require the Fed to issue a new rule capping interchange fees far below most issuers' transaction costs.

Amicus Brief: In the friend-of-the-court brief in Corner Post, Inc. v. Board of Governors of the Federal Reserve System, ICBA and the other groups say:

• Dodd-Frank allows the Fed to include all four of the listed costs in its calculations, and the District Court’s interpretation would harm the debit card market.

• The District Court's decision would provide a windfall to merchants while hurting other participants in the debit card market.

• Consumers would not benefit from a reduced interchange fee cap, as merchants have demonstrated that they would not pass along any savings and reducing fees below issuer costs would limit issuers’ ability to facilitate secure and efficient debit transactions.

Recent Letter to the Fed: ICBA and other groups last month urged the Fed to withdraw its 2023 debit interchange proposal until there is legal certainty in several court cases, noting the Corner Post and Linney’s Pizza cases have conflicting rulings on the original Reg II. The Fed proposal would lower the maximum interchange fee that covered debit card issuers may receive for debit card transactions under Reg II.

Previous Comments on Corner Post: ICBA in August said it was disappointed by the North Dakota district court’s ruling in the Corner Post case that excludes debit card fraud losses from Reg II, stripping community banks of the ability to recover the largest category of fraud losses and putting consumers’ debit card security at risk. Federal regulators released materials for submitting fourth-quarter call reports, which are due by Friday, Jan. 30. There are no new or revised data items for the FFIEC 031, FFIEC 041, or FFIEC 051 call reports for the quarter.