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July 22, 2024 • Issue 24:07:02

The litigious world of payments

certain fraud prevention criteria. The cap applies to finan-
cial institutions with $10 billion or more in assets. Previ-
ously, debit card interchange averaged about 45 cents.

Nobody was happy about the new cap. FIs complained it
was too low; merchants countered it was too high.

Last year the Fed laid out a plan to slash the cap to 14.4
percent plus 4 basis points (0.04 percent) and 1.3 cents for
fraud prevention beginning in 2025. That proposal spurred
an avalanche of comment letters to the Fed, most in opposi-
tion. Even one member of the Board of Governors, Gover-
nor Michelle Bowman, opposed the plan.

And at least one member of Congress has taken a stand.
By Patti Murphy Senator Ted Budd, R-N.C., introduced legislation in June
that would require the Fed to hit the pause button on the
ayments has become a litigious business, and proposal until it completes a full quantitative impact as-
that doesn't bode well for the card brands or sessment of the effect on consumer costs and the economy.
banks. Two recent judicial actions demonstrate
P this. First a federal district court judge rejected The National Retail Federation stated that it wants the Fed
a proposal that would have settled the decades-long feud to lower the cap to 10.5 cents, and to ditch the fraud preven-
between the card brands and merchants regarding inter- tion component since the adoption of EMV shifted fraud
change and related issues. costs to merchants.
Merchants won this round
Then the U.S. Supreme Court opened the floodgates to liti-
gation over Federal Reserve regulations when it sided with The Supreme Court's ruling (issued on July 1, 2024) clear-
a merchant looking to challenge the debit card interchange ly favors merchants. That's because it ruled the statute of
cap imposed by the Fed in accordance with the Durbin limitations for suing a federal agency (like the Fed) regard-
Amendment to the Dodd-Frank Act. ing a regulation (like Reg II which implements the Durbin
Amendment) does not commence until a suing party (in
[The ruling was separate from the so-called Chevron deci- this case Corner Post, a truck stop) opens for business.
sion, handed down by the Supreme Court in June, which The Fed had argued that the statute of limitations com-
curtailed the power of federal agencies to interpret the laws menced when the cap took effect in 2011 and ended in 2017.
they administer, shifting that job to the courts. But it had
the same effect; it was just specific to the Fed.]

Here's the really scary thing about the Supreme Court de- Contributed articles inside by:
cision on debit card caps: the merchant, a North Dakota
truck stop, didn't even open for business until after the pre- Allen Kopelman .....................................................................................16
sumed statute of limitations on such legal challenges had
run its course. The statute of limitations is six years. Adam Atlas ..............................................................................................24
Jaki Kackert .............................................................................................26
After the Durbin Amendment became law, the Fed capped
debit card interchange at 21 cents per transaction plus 5 Edgar Murrans .......................................................................................28
basis points (0.05 percent) and an extra penny for meeting
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