At Last, Finality on Durbin

No sooner were we going to press with this issue than the U.S. Supreme Court rejected a petition from major merchants and merchant groups that, if it had been accepted, might have thrown the Federal Reserve’s interpretation of the Durbin Amendment into a cocked hat—again.

High-court review at a minimum would have certainly prolonged, and intensified, the air of uncertainty surrounding this key regulation, which went into effect more than three years ago and puts a ceiling on debit card interchange pricing. It also mandates that merchants have a choice of networks in routing debit transactions.

It’s not our intention here to repeat at length well-worn arguments over the amendment and the Fed’s rules implementing it. In brief, we argued in 2010, when the law was first proposed and adopted, that it was ill-advised. And we argued later that the Fed’s rules, while well-intentioned, departed from the clear language of the law.

Now we simply want to state three things that came to mind in the wake of the Supreme Court’s rejection of the merchants’ appeal:

1. Merchant power on this issue seems to be waning;

2. The Fed rules, skewed as they are, remain in place;

3. And there is, finally, a sense of finality to this issue.

So now a few words about each of these points:

On the first item, the Durbin Amendment represented a monumental victory for retail interests over banking interests in a struggle over card-transaction pricing that has been going on for decades. For years, in and out of courts of law, merchants had mounted challenges to interchange, and they had always fallen short. Not so with Durbin, which came along when the banks’ case had been weakened by the financial crisis of 2008-09.

But since the heady days of 2010 the merchants have met with disappointment and reversal. First came the Fed rules, which struck merchants as watered down. True, a federal court in 2013 ordered the Fed back to the drawing board, but an appeals court sustained the Fed last year. The merchants challenged that ruling, setting the stage for the Supreme Court’s rejection.

On the second point, while we regretted the amendment, we regretted also the Fed’s failure to follow the law in drafting its rules, which allow for higher caps and less stringent routing rules than intended by Durbin. Nonetheless, those rules appear now to be final.

On the third point, that finality—and the certainty it betokens—are welcome developments. Debit cards are going to be with us for quite a while yet. Issuers and acquirers need certainty for product planning and pricing. We daresay merchants do, too.

John Stewart, Editor

john@digitaltransactions.net