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The Green Sheet Online Edition

April 09, 2012 • Issue 12:04:01

Coalition responds to retailers' debit rule complaint

On March 15, 2012, a coalition of financial institution trade associations petitioned to file an amicus brief in a lawsuit brought by a group of retail associations. The retailers are protesting the Federal Reserve Board's rule implementing the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

The retailers' are dissatisfied

An amicus curiae brief is filed by entities not a party to a case but who believe they have information to offer that will assist a court in making a decision. A court decides whether to consider an amicus brief, depending on whether it finds the filers and information to be relevant to the case in question. The retailers' suit was filed in the Federal District Court of the District of Columbia in November 2011 - one month after the final rule implementing the Durbin Amendment went into effect. The suit claims the final debit interchange rule is flawed because the Fed did not follow the law when creating and implementing the rule.

According to the plaintiffs, the Fed considered costs it was barred by law from considering when it developed the new rule, which cut the average debit card interchange rate to approximately half of what it had been. The retailers stated the Fed failed to provide them the full extent of swipe card relief Congress meant for them to have.

Financial institutions disagree

In the proposed amicus brief, the petitioning financial institutions argue that the final rule is flawed, but for opposite reasons of those put forth by the retailers. They claim they will be harmed, and consumers will receive no benefit, if the court decides in favor of the retailers.

The financial institutions' amicus brief states that if the court finds the Fed did not provide the full debit card interchange fee relief Congress intended, it will contradict the congressional mandate in the legislation that the interchange fees include a reasonable rate of return for issuers. The brief also asserts that the "below-cost fee cap" in the Federal Reserve Board's final rule is not in the public's interest because the rule "imposes significant burdens on consumers," the rule imposes "serious harm on financial institutions," and because the final rule "grants a windfall to merchants with no corresponding benefit to consumers."

The brief additionally argues the Durbin Amendment "does not require issuers to enable additional networks for electronic debit transactions or multiple networks for each form of transaction authorization" as the Fed requires in its final rule.

Consumers gained nothing

Trish Wexler, a spokeswoman for the coalition of financial institutions submitting the proposed amicus brief, said, "The merchants have claimed all along that imposing government price controls on interchange fees would directly benefit consumers, yet there is absolutely no evidence that they have lowered their prices. So while consumers have gotten nothing from the retailers, the merchants are back asking the courts to add even more to the $6 billion windfall they are now enjoying."

Bill Cheney, President of the Credit Union National Association, warned deepening the cut in debit interchange fees would mean customers of financial institutions would have new fees and cuts in benefits "that will be needed to continue supporting the payment systems infrastructure." end of article

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