Credit unions score major victory
by. Henry Meier
Credit unions scored a major victory on Friday when a federal appeals court in Washington reversed the decision of a district court and upheld regulations promulgated by the Federal Reserve Board to implement the dreaded Durbin Amendment. The victory means that debit card issuing credit unions don’t have to spend this morning shopping around for additional payment networks. It also means that you don’t have to worry about even lower debit interchange fees for larger institutions indirectly impacting your bottom line.
As many of you no doubt recall, the Durbin Amendment has two major components. First, it calls on the Federal Reserve Board to limit debit interchange fees that could be collected by institutions with $10 billion or more in assets to an amount that is proportional to the cost incurred by the issuer with respect to a transaction. It also prohibited limiting the number of payment card networks on which debit cards can be processed to one network. The Federal Reserve interpreted these statutory mandates with regulations mandating that card issuers offer at least one PIN-network and one unaffiliated signature debit card network. The Board also capped debit interchange fees for larger institutions at approximately $0.24 per transaction.
In a somewhat amusing twist of fate, many of our merchant friends ended up losing money as a result of the new regulations. They went to court and in one of the most sarcastic decisions you are ever going to read, a federal district court in Washington concluded that the Federal Reserve misread the clear intention of the statute and ordered the Federal Reserve to go back to the drawing board and devise a debit card cap which included a narrower definition of transaction costs. In addition, the judge ordered issuers to provide merchants with two networks for PIN-based debit transactions and two networks for signature-based debit transactions.
I’ll spare you the gory details of the Appellate Court’s analysis, which hinged, among other things, on the difference between “which” and “that,” but the bottom line is that whereas the District Court saw the Durbin Amendment as a clearly drafted legislative mandate, the Appellate Court saw that it was a poorly drafted 11th hour amendment to Dodd-Frank. As a result, the Fed was justified in interpreting the statute more liberally than the merchants would have liked.
continue reading »
