Banking lobbies back Fed in debit swipe-fee suit

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For the second time this year, banking trade groups have taken the Federal Reserve's side in pending litigation.

The Bank Policy Institute and The Clearing House filed a joint motion on Wednesday to intervene on the Fed's behalf in its ongoing lawsuit with Corner Post, Inc., a North Dakota truck stop that is challenging the central bank's Regulation II under the Administrative Procedures Act, or APA.

Regulation II is the Fed's implementation of the so-called Durbin Amendment to the Dodd-Frank Act of 2010, which limits the processing fees debit card issuers can charge to merchants during transactions. Corner Post argues that the Fed went beyond the parameters of the Durbin Amendment when crafting the regulation and set the cap on interchange fees too high. 

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Last month, BPI and TCH joined several other banking organizations to support the Fed in another lawsuit, that one involving the Cheyenne, Wyoming-based crypto bank Custodia. But unlike that case, in which the trade groups filed as amicus curiae — meaning they were not parties to the case but merely have relevant information to share — they are petitioning to join the Corner Post case as intervenors to protect their own interests.

In their filing, the groups argue that Corner Post's interpretation of the amendment is incorrect and would have significant negative impacts on card-issuing banks.

"Any rule promulgated under [Corner Post's] erroneous reading of the Durbin Amendment would ignore substantial and verifiable costs incurred by [BPI's and TCH's] members in providing for and processing debit card transactions in contravention of the amendment," the groups wrote, adding that they have "an obvious, direct interest in the result of such a challenge."

The groups also argued that because they are uniquely capable of defending their own interests on this matter, the issue should not be left up to the Fed board of governors alone to make the case in favor of Regulation II. 

"The Board, as a governmental entity, is tasked with the broad responsibility of executing the Durbin Amendment's goals and is subject to potential shifts in policy — both of which make it impossible for the Board to adequately represent [card issuers'] narrow, direct interest in the outcome of this litigation," the trade groups noted. "[We] are uniquely situated to defend their financial interests against Plaintiff's challenge to the long-settled Regulation II."

The Corner Post case has drawn interest beyond the banking industry because of its implications for how and when APA challenges can be brought. Earlier this year, the Supreme Court reversed a lower court decision on the matter, finding that the six-year statute of limitations does not begin accruing until an individual or firm is harmed by an agency rulemaking.

So, even though Regulation II has been on the books for more than a decade, Corner Post is still able to file an APA challenge because the gas station did not open until 2018. 

Merchant groups first challenged Regulation II in 2011, ultimately reaching the U.S. Court of Appeals for the D.C. Circuit in 2015. But the court ruled against them, finding that the terms of the regulation fell within the bounds of the Fed's discretion. The Supreme Court opted not to take up the appeal.

In 2021, a pair of North Dakota retail associations challenged the regulation again. Corner Post joined that suit as a standalone plaintiff. The challenge was dismissed at both the U.S. district and appellate levels, with both courts ruling that the claims began accruing at the time the rule was enacted, meaning the statute of limitations had long been reached.

In July, the Supreme Court reversed that decision, finding that Corner Post's statute of limitations had not been reached. It remanded the case back to the appellate level. 

The case could continue to have ramifications beyond the banking sector. A ruling in favor of Corner Post would not only force the Fed to go back to the drawing board for its interchange regulation, but would also demonstrate how courts are viewing agency discretion after the revocation of the so-called Chevron Doctrine earlier this year. The 40-year precedent, which encouraged courts to be deferential to agencies on matters involving unclear statutory mandates, was struck down in June.