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Court Overturns Fed Interchange Rule

Posted on 8/1/2013

A federal district court yesterday vacated the Federal Reserve's rule setting debit interchange fees under the Dodd-Frank Act. The court ruled that the Fed "clearly disregarded Congressional intent by inappropriately inflating all debit card transaction fees by billions of dollars and failing to provide merchants with multiple unaffiliated networks for each debit card transaction."

The court argued that the Fed should not have considered fixed costs, fraud prevention costs, fraud losses, and network fees when calculating the fee cap, as those were outside the considerations allowed under Dodd-Frank. The court also ruled that the Act requires merchants to have at least four network options, or two each for PIN and signature transactions.

ABA explained that the court's decision will harm banks of all sizes and make it more difficult for institutions to serve their customers.

"We question the court's analysis that the statute doesn't permit all the costs associated with an individual transaction to be part of the allowable costs," ABA President and CEO Frank Keating said. "From our perspective, that's a plain misreading of the statute.

"The price controls enacted as a result of the Durbin Amendment served one purpose - further lining the pockets of our nation's big-box retailers at their own customers' expense. It was - and still is - all about trying to help retailers increase profit margins while providing no real benefit to consumers… We urge the Federal Reserve to pursue all legal means to mitigate the harm this decision will cause to consumers, community banks, and all institutions that provide financial services to local communities."

The current rate cap will remain in effect until the Fed revises its rule.



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