WASHINGTON—A recent federal court decision striking at the foundation of the Federal Reserve’s debit interchange rule is unlikely to affect credit unions in the near term, but the long-term stakes are significant, according to Ann Petros, vice president of policy engagement and credit union operations at America’s Credit Unions.
Earlier this month, the U.S. District Court for the District of North Dakota ruled that the Fed overstepped its authority in its 2011 Regulation II, which set debit interchange caps under the Durbin Amendment. The court said the agency must limit the cap to actual transaction-processing costs, excluding fraud losses and other expenses. The decision, if upheld on appeal, could force the Fed to recalculate interchange caps, reducing revenue for institutions with more than $10 billion in assets.
Petros emphasized the ruling is far from final.
“The reality is that there’s no immediate impact,” she said. “This is a district court decision that we know is very likely to be appealed by the Fed to the 8th Circuit Court of Appeals. So, this is far from over.”
Petros noted that the court itself stayed its order, leaving the existing rule in place.
Petros cautioned that it could be years before the case is resolved, pointing out the litigation has roots in the Supreme Court’s January decision in Corner Post, which cleared the way for retailers to challenge the Fed’s rule more than a decade after its adoption.
“This could be something that even goes back up to the Supreme Court,” she said. “Even if the Fed prevails in the 8th Circuit, I wouldn’t be surprised to see retailers appeal again.”
Revenue Pressure if Upheld
Ann Petros
Still, Petros did not dismiss the potential consequences for credit unions. Should the decision ultimately stand, she warned, credit unions could face a “significant loss in interchange income” that would have to be offset elsewhere to support debit card programs.
“It is not going to be a positive outcome for credit unions if this decision is upheld,” she said, adding that the impact would be largely the same for banks affected by the debit interchange cap.
Petros framed the ruling as one part of a broader, multi-front campaign by retailers to reduce interchange fees. In addition to lawsuits, she cited the ongoing push in Congress for the Credit Card Competition Act, championed by Sens. Dick Durbin (D-IL) and Roger Marshall (R-KS), and sustained pressure on the Fed to revisit its debit cap through regulation.
“This has been a 14-year battle with the retailers,” she said. “They’ve been relentless.”
Message To Credit Unions: Don’t Overreact—Yet
For now, Petros urged credit unions not to overreact.
“There’s a long way to go,” she said. “Ultimately, it’s difficult to speculate what may happen with debit cards, credit cards, or other products credit unions offer. But should this decision be upheld, it would not be positive. Our hope is that the litigation resolves in favor of the Fed.”
CUToday.info shared another perspective on the debit interchange battle here.