Lawyers for the Federal Reserve were supposed to explain on Wednesday (Aug. 21) how the Fed would act to reduce debit-card transaction fees. Instead, they told a judge that the Fed was appealing his ruling and has no plan for an interim fee reduction, Reuters reported.
The Fed's general counsel, Scott Alvarez, told U.S. District Judge Richard Leon that the agency would prefer to keep the current 21-cent debit transaction fee cap in place while the case was appealed. Alvarez said it would be unreasonable to ask the Fed to craft new fee limits while it was asking an appeals court to approve its current fee cap.
Attorneys for both retailers and banks said their clients would have to change systems to comply with any interim rule, even though it might be thrown out by the appeals court. "Switching back and forth is something that imposes costs on everybody," said Seth Waxman, a banking industry lawyer.
Leon ruled on July 31 that the Fed failed to follow the Dodd-Frank financial reform law when it set a debit fee cap of 21 cents per transaction in 2011. The Fed had originally calculated a 12-cent cap, but later raised it to 21 cents after recalculating to include bank costs that weren't directly related to debit transaction processing. Leon called the new calculations "utterly indefensible," and said he expected the Fed to fix the problem in "months, not years."
With Wednesday's appeal, Leon may have gotten what he wanted. The Fed officially had 60 days to appeal Leon's decision, but in order to avoid having to come up with a plan for an interim fee, the agency filed for its appeal just 21 days after the ruling. That effectively fast-tracks the appeal, which is clearly what Leon had in mind.
None of this changes the debit fees that retailers are currently required to pay, because Leon also ruled in July that the current fees would remain in place until the Fed came up with interim rules. However, unless the appeals court reverses Leon's decision, merchants could see both a rate reduction and the return of potentially billions of dollars in overcharged fees—and that's increasingly likely to happen sooner rather than later.
- See this Reuters story
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