The Board of Governors of the Federal Reserve System this week said it plans to appeal a U.S. district court decision that vacated its regulation of debit card transaction fees.
The Fed filed the notice Monday, according to the U.S. District Court for North Dakota, where the case was initially filed, and an entry with the Eight Circuit Court of Appeals docket.
In the case, a North Dakota truck stop and convenience store, called Corner Post, is suing the Fed over its regulation of fees that can be imposed on merchants when consumers swipe a debit card.
Plaintiffs in the case alleged that the Fed should have used a fee standard that calibrates the rule for each bank card issuer, so it’s proportional to each issuer’s costs, instead of being the same for all of them. Not doing so exceeded the Fed’s “statutory authority and was “arbitrary,” and “capricious,” they contended.
Bank card issuers and other intermediaries, such as card networks, impose fees for card transactions. Regulations for the transactions grew out of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.
In a separate filing last month, the Fed also asked the North Dakota court to clarify its August ruling in the case, nudging it to say that the decision pertained only to “debit card interchange fee standards,” and not to the entire rule, known as Regulation II, which includes other aspects of oversight.
“The interchange fee standards in 12 C.F.R. § 235.3(b) are the only provision of the broader Regulation II placed at issue by the complaint and by Plaintiff’s motion for summary judgment,” the Fed’s Sept. 3 request for clarification said. “Accordingly, the other provisions of Regulation II should stand despite the Court’s ruling.”
Corner Post is backed by retail trade groups, which have long argued that the debit fees paid by merchants are too high. They’ve made the same arguments about credit card fees, which are unregulated, and members of Congress have sought to rein those fees in as well.
In the debit fee case, U.S. District Judge Daniel Traynor ruled in August that the Fed was “in excess of the Board’s authority” when it promulgated the debit card regulations.
The lawsuit was initially filed by the North Dakota Retail Association and North Dakota Petroleum Marketers Association in April 2021, but those trade group plaintiffs dropped off the case last August, leaving Watford City, North Dakota-based Corner Post as the sole plaintiff.
As part of Reg II, the Fed capped debit card swipe fees in 2011 at 21 cents, plus 0.05% of the value of the debit transaction, in addition to allowing a one-cent fraud-prevention add-on. The fee cap applies only to banks and financial institutions that have $10 billion or more in deposits.
In 2023, the Fed proposed to change the cap for the first time, suggesting the base debit fee rate be lowered by about 30% to 14.4 cents.
The proposed change also included adjusting the amounts banks can charge to cover fraud losses, cutting that amount to .04% of the value of the debit transaction from .05%, but recommended an increase in the amount issuers can charge for fraud prevention, raising that amount to 1.3 cents, from one cent.
The Fed’s notice this week to the appellate court was terse, with the court docket indicating that the Fed must file its appellant brief, which would include its arguments for the appeal, by Nov. 28, with a response from the plaintiffs due 30 days later.
Still, the parties appear to be waiting on the district court’s response to the request for clarification as well.
Neither of the parties responded to requests for comment.
