Though Facing Slim Odds, A Merchant Group Takes Its Durbin Case to the Supreme Court

Arguing that a federal appeals court “disregarded the plain letter of the statute,” a group of merchants and merchant associations is preparing a request to the U.S. Supreme Court to review a case in which it is battling to overturn the Federal Reserve Board’s interpretation of the Durbin Amendment’s debit card interchange restrictions and routing rules.

The merchant group on Friday filed a request with the high court asking for an additional 30 days to prepare its petition for a writ of certiorari, a technical requirement necessary for a Supreme Court review. The deadline is June 19, but the group is asking for an extension to July 21. More time is needed to coordinate legal action with association members and to brief new lawyers brought in because of their experience before the Supreme Court, the merchant group argues.

The group includes two merchants, Miller Oil Co. and Boscov’s Department Store LLC, and four retail trade groups, NACS (formerly the National Association of Convenience Stores), the National Retail Federation, the Food Marketing Institute, and the National Restaurant Association.

The group faces a stiff challenge, experts say. Only about 1% of petitions to the Supreme Court for certiorari are granted. But if the high court does hear the case, “I think the merchants have a fighting chance,” says Eric Grover, principal of Intrepid Ventures, a payments consultancy based in Minden, Nev.

Since it was a three-judge panel that struck down the lower court decision, the merchants could have appealed to the full appeals court, but decided to take their case to the Supreme Court instead. “We went to the Supreme Court rather than the full Circuit Court because the justices have shown an historical interest in cases where a federal agency contradicts what was passed by Congress,” says a spokesman for the NRF in an email message. “We are hopeful that they will see this as an opportunity to make a strong statement that federal agencies are expected to follow the law.”

Meanwhile, the Fed is working on its side of the case. In a statement sent to Digital Transactions News, the Fed says: “We are aware of the [merchant] filing and will be working with the Solicitor General’s office regarding a response.”

The merchant group’s move to ask for a Supreme Court review follows a decision in March by the U.S. Court of Appeals for the District of Columbia to uphold the Fed’s pricing caps and routing rules for debit cards. The banking regulator had appealed a federal court decision issued last summer that nullified the interchange and routing rules and directed the Fed to draft new rules more in keeping with what it said was the Durbin Amendment’s language.

At its passage in 2010, the Durbin law, an amendment to the Dodd-Frank Act, called for debit card interchange restrictions and a broader choice of networks for merchants. It also charged the Fed with filling in the specifics on interchange caps and network routing. But the Fed’s final set of Durbin rules, issued in 2011, allowed far more leeway in pricing and routing than either the merchants or Sen. Richard Durbin, D.-Ill., author of the amendment, expected, leading to the merchant lawsuit.

On pricing, the nub of the case is the Fed’s allowance of certain fixed costs for issuers, resulting in an interchange cap of about 23 cents. The merchants argue this is far too high and has cost them “billions of dollars,” as they put it in their petition for the deadline extension. Similarly, they argue the amendment’s routing language requires a choice of at least two unrelated networks for each authentication method, signature or PIN, while the Fed rule simply requires a choice of two unaffiliated networks.

In July, Judge Richard Leon of the U.S. District Court for the District of Columbia agreed with the merchants and ordered the Fed to redraft its Durbin rule. The Fed then prevailed in the federal appeals court in March.

In part, the merchant group is now basing its Supreme Court petition on the broad consumer effect that debit cards have. “We think the case is significant enough it merits the Supreme Court looking at it,” says Douglas Kantor, a partner with Steptoe & Johnson LLP, Washington, D.C., who represents the merchant group. “It affects virtually everybody every day.” The merchant case is based, in part, on the idea that consumers ultimately must pay more for goods and services because of excessive debit card interchange costs borne by retailers.

Grover rejects that argument but concedes the merchants have a case, if only because, he says, the Fed departed from the clear requirements of Durbin. “It is a bad law but it is the law,” he argues. “Police and courts don’t get to say, ‘This was a bad law, so we’re not going to enforce it.’”