In a stunning ruling, a Washington court denounced the Fed’s debit card interchange fee cap as “utterly indefensible”:
In a strongly worded opinion, U.S. District Judge Richard Leon in Washington said the Fed rule amounted to an “utterly indefensible” interpretation of the 2010 Dodd-Frank financial law. The Fed rule, he said, “runs completely afoul of the text, design and purpose” of a Dodd-Frank amendment authored by Sen. Richard Durbin, (D., Ill.) to limit the fees.
Led by its general counsel, Mallory Duncan, the National Retail Federation filed the suit in 2011. The judge in this case set a hearing to discuss what happened next for Aug. 14.
One potential outcome is that the court instructs the Fed to rollback debit interchange fees to their original draft rule cap of $0.12 published in December 2010, which was later amended in the final rules to its current $0.21. The court also indicated that merchants have not been given multiple routing options for all debit card transactions, which addresses the rule that allows issuers to define different networks for PIN and signature debit transaction but not two different networks for each transaction type.
At this time, the Federal Reserve nor major issuers or networks have responded to the ruling. Now that this case has been adjudicated however, the final outcome is likely to be painful and protracted, throwing the debit card industry into turmoil once again.
Click here to read more from the Wall Street Journal. Click here to download the ruling. Read Patricia Hewitt’s Perspective about the ruling. Read Tim Sloane’s Perspective about what the ruling means for prepaid.