DISTRICT COURT RULES REG II IS LAWFUL AND REASONABLE

The following information was released by the Credit Union National Association (CUNA):

A Kentucky U.S. District Court ruled this week the Federal Reserve's debit interchange Regulation II is lawful and reasonable. This conflicts with a different court's decision on the same matter in North Dakota. The Kentucky retailer sued the Federal Reserve in 2022 arguing that the debit card interchange regulation improperly includes certain costs in its calculation leading to unfairly high fee cap, but the court dismissed the challenge.

Last month a North Dakota District Court, aka Corner Post, found the Fed's approach to regulate interchange fees violates the Durbin Amendment by considering costs beyond authorization, clearance, and settlement.

Regulation II sets a debit interchange fee cap at 21 cents per transaction, plus a 0.05% ad valorem adjustment based on the transaction's value.

Both cases may now be appealed to different appeals courts, which could lead to additional legal uncertainty around Regulation II. It also means that the issue may elevate to the U.S. Supreme Court to resolve the judicial split on the lawfulness of the Fed's interchange law, Regulation II.

America's Credit Unions wrote to the Fed following the North Dakota decision, calling for the Fed to withdraw its proposed update to Regulation II, as the decision could complicate how the rule is administered, as without major revisions the rule would contain unresolved legal issues stemming from the court decision.