Update on Today’s Court Hearing on the Merchant Lawsuit Against the Federal Reserve

Jason Oxman
August 21, 2013 – I attended the status conference in the D.C. District Court today in NACS v. Federal Reserve, the merchant appeal of the Federal Reserve’s implementation of the debit interchange/routing provisions of the Durbin Amendment. In the hearing today, Judge Leon asked attorneys for the Federal Reserve what the Fed’s plan is in the wake of the court’s decision striking down the implementing rules related to debit interchange rates and debit network competition.  The Fed announced what by most accounts was a surprise – that the Fed and the merchant plaintiffs had jointly agreed that they would ask the court to stay its decision pending appeal. Judge Leon asked the merchants’ counsel for an explanation, and counsel explained that the merchants feared that if the Fed’s rules are vacated (struck down entirely) by the court during the appeal of the court’s decision, there would be NO rules in place regarding debit interchange fees, which would allow debit issuers to charge merchants whatever they wanted. The merchants explained to the court that they would rather continue to pay 21 cents per debit transaction for the next year or so while the appeal is pending, rather than pay what they called the unregulated market rate, which they claimed was upwards of 50 cents per transaction before the Durbin Amendment was implemented.

Judge Leon said he was not inclined to grant a stay. Both the Fed and merchants represented to the court that would jointly seek a stay from him, and if he denied it, they would jointly seek a stay from the D.C. Circuit Court of Appeals.  The Fed and merchants also agreed that they would jointly seek an expedited appeal from the D.C. Circuit, in the hopes that a decision from the Court of Appeals would be issued prior to the end of its next term in May 2014. The parties said they would file their notice of appeal with the D.C. Circuit today, and that they would file their request for a stay pending appeal by the end of this week.

Judge Leon asked the parties to file, by August 28, briefs setting out their arguments regarding his authority to order the Federal Reserve to issue interim rules to replace the rules he found unlawful. Such interim rules would, according to Judge Leon, remain in force while the appeal to the D.C. Circuit was pending. The attorney for the debit card issuers, who filed an amicus (friend of the court) brief, stated his belief to the court that it lacked any authority to order the Fed to conduct such an interim rulemaking proceeding.

So as it stands today, the Fed’s rules regarding debit network routing and debit interchange, found unlawful and vacated by the D.C. District Court, are still in effect because Judge Leon stayed his own decision while he awaits briefs, and then issues his own ruling, on whether he should stay his decision pending appeal and/or should instruct the Fed to write interim rules during the appeal.

ETA will continue to monitor the case.

[spacer height=3] [divide] [spacer height=3] Jason Oxman is the CEO of the Electronic Transactions Association.