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US Court Of Appeals for the District of Columbia Upholds Interchange Decision

Posted on 3/24/2014

The D.C. Circuit Court of Appeals today overturned a lower court decision that would have required even lower debit interchange fee caps than the Federal Reserve's rule calls for. The three-judge panel rejected arguments from the retail industry in finding that the Fed's rule "generally rests on a reasonable interpretation of the statute."

Specifically, the appeals court upheld the Fed's use of fixed costs, network processing fees and fraud loss costs in the interchange fee cap calculation, although it said the Fed would need to provide further justification for its inclusion of transaction monitoring costs. The court also found that the Fed followed the Durbin Amendment in its "anti-exclusivity" provision on network choice.

The court also noted that the statutory language put the Fed and the courts "in a real bind," adding that the "poorly drafted" Durbin Amendment is "confusing and its structure convoluted." Indeed, the court said that the retailers' argument depended on resolving an apparent discrepancy between word choice and proper grammar by "stuffing punctuation to the bottom of the interpretive toolbox."

District Court Judge Richard Leon, in the lower court's decision last July, said that the Fed's rule violated congressional intent in the Dodd-Frank Act by setting the interchange fee cap too high and failing to allow merchants to choose multiple unaffiliated PIN and signature networks for each card transaction they process.

To view the appellate decision visit:$file/13-5270-1484753.pdf

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