What’s At Stake With Durbin Litigation
by. Henry Meier
Yesterday’s hearing before Judge Leon brought a sense of normalcy to what’s been a wild few weeks since the court struck down the Federal Reserve Board regulations implementing the Durbin Act. With the Federal Reserve’s announcement that it had decided to go ahead and appeal the ruling, the legal parameters of this debate have become more clear.
- Even though the Federal Reserve Board will be appealing, the Judge is under no obligation to “stay” (keep his ruling from taking effect) his decision until the appellate court decides the case. Judge Leon could decide to issue a stay of his own volition, but in the previous hearing he indicated that he was at least considering forcing the Federal Reserve Board to craft an interchange rule that would be in effect pending appeal. CUNA anticipates that the appeal process could take about nine months. The bottom line is that the most immediate issue to be resolved is whether a stay should be granted. If it is not, then that decision could also be appealed. Whether or not a stay should be imposed comes down to a balancing of the cost and harm of imposing a stay pending appeal vs. the benefit of immediately granting the relief sought by the winning party. The argument for a stay was strengthened yesterday when lawyers for the merchants joined in the application for a stay pending appeal.
- On appeal the legal issue will actually have very little to do with the merits of the Durbin Amendment and instead focus attention on one of those esoteric but vitally important legal disputes that put grins on the faces of law professors and make everyone else glad they didn’t go to law school. Whenever Congress passes a statute and commands an agency to promulgate regulations implementing that law, the baseline responsibility of the regulator is to determine Congressional intent. It is only is those cases where Congressional intent is unclear that the regulator has discretion in implementing the statute. For example, Judge Leon is arguing that Congress clearly intended that the Federal Reserve Board mandate that merchants have the option of choosing between multiple networks irrespective of whether a consumer decides to pay using a PIN- or signature-based debit card transaction. In contrast, the Federal Reserve promulgated regulations simply requiring that issuers provide access to independent PIN- and signature-based processing networks. If Judge Leon is right, issuers will have to invest in another round of infrastructure improvements, but if the FED is right then nothing more needs to be done.