Retailers Prepare To Argue for a Rewrite of Debit Rules While Durbin Spars With Bankers

You’d almost think it was 2010 all over again, given the current fights about the Durbin Amendment, the section of that year’s Dodd-Frank Act that regulates debit card interchange and transaction routing. Oral arguments are set for Oct. 3 in a retailer lawsuit that seeks to have a court order the Federal Reserve Board to start afresh in devising regulations for implementing the controversial amendment’s provisions because the Fed allegedly did not follow the amendment’s dictates in setting the debit card rules now in place.

Meanwhile, amendment author Sen. Richard Durbin, D-Ill., on Tuesday fired back at the American Bankers Association, which last week called on Congress not to “repeat the mistakes of the past” and extend interchange price controls to credit cards. ABA president and chief executive Frank Keating issued that call in response to a letter to Congress from the National Retail Federation and eight other merchant trade groups criticizing the proposed settlement to a massive group of merchant lawsuits challenging credit card interchange.

The NRF, NACS (formerly the National Association of Convenience Stores), the Food Marketing Institute, Boscov’s Department Store LLC, and Miller Oil Co. will argue next week in U.S. District Court in Washington, D.C., that the Fed overstepped the boundaries the Durbin Amendment laid out for which debit card issuer transaction costs it could or couldn’t consider as it set interchange price controls. The Fed first proposed a 12-cent cap on transactions with debit cards from issuers with more than $10 billion in assets, but after bank protests it settled on 21 cents plus 0.05% of the transaction and another penny for fraud control.

The trade groups and retailers sued the Fed last November in an effort to start the rule-setting process anew. In a May filing, the plaintiffs said the board “manufactured ambiguity” in its interpretation of the amendment’s language.

A Federal Reserve spokesperson would not comment about the upcoming hearing. But in filings this past spring, attorneys for the Fed said the board properly implemented the law’s directives regarding the authorization, clearing, and settlement costs that could be considered in regulating debit card interchange, and also properly carried out the provisions on which costs to exclude.

The plaintiffs also say the amendment called for merchants to have more transaction-routing choices than the Fed’s rule ultimately gave them. The Fed, however, will dispute that charge at the hearing. “The final rule reflects a reasonable interpretation of the statute,” says a June 1 Fed filing. The rule that took effect last April says each debit card transaction must access at least one unaffiliated network.

Filings from both sides are filled with references to case law mainly of interest to lawyers. But the fight between the ABA and Durbin is being played out in Congress and the press with verbal missives as the pending credit card settlement raises the specter of further interchange regulation. A number of merchants and their trade associations, including several plaintiffs, have come out against the $7.2 billion settlement to the cases first filed in 2005. Last week’s letter from nine trade groups stopped short of asking Congress for legislation that would regulate credit card acceptance costs, but the intent seemed clear.

That letter prompted the ABA’s Keating to write to Senate and House of Representatives leaders urging them to stay out of the fray. “Once again, the retail industry is bombarding Congress with manufactured claims of unfairness over how the U.S. payments system operates, part of an effort to drag lawmakers back into the controversial debate over interchange fees and how market participants share in financially supporting that system,” Keating said.

The outspoken Sen. Durbin, who has criticized the proposed settlement, couldn’t resist responding to the Washington-based ABA’s letter with his own to Keating. “Congress made no mistake in passing debit interchange reform” and “Main Street businesses that were previously being crushed by ever-rising debit swipe fees are now seeing real relief,” Durbin said. He went on to reiterate his earlier criticisms of the settlement, which includes protection for Visa Inc. and MasterCard Inc. from future merchant legal challenges to interchange.

Durbin didn’t say he would propose credit card regulations, but he said that in contrast to the changes in debit cards, credit cards and mobile payments “still suffer from excessive swipe fees, a lack of transparency, and a dearth of real competition. Based on your letter, it appears your association wants to keep things that way.”

Durbin, in fact, mentioned mobile payments several times in his letter—an indication he’s got his eye on that fast-growing payments niche. A spokesperson for Durbin did not respond to a Digital Transactions News request for comment on that issue.