Nacs v. Board of Governors of the Federal Reserve System
958 F. Supp. 2d 85
D.D.C.2013Background
- Plaintiffs (national merchant trade associations and individual retailers) challenged the Federal Reserve Board’s Final Rule implementing Section 920 of the EFTA (the "Durbin Amendment") that capped and defined permissible debit-card interchange fees and prescribed network non‑exclusivity requirements. The rule became effective Oct. 1, 2011.
- The Board's Final Rule set an interchange ceiling of $0.21 plus 0.05% of transaction value and allowed issuers to recover a broader set of costs (fixed ACS costs, transaction monitoring, fraud losses, and network processing fees) beyond the issuer's incremental authorization/clearing/settlement (ACS) costs the Board had originally proposed to allow.
- For routing/non‑exclusivity, the Board required each debit card to be enabled with at least two unaffiliated networks (not necessarily two networks for each authentication method such as PIN and signature).
- Plaintiffs argued the Board exceeded its authority: (1) the Durbin Amendment allows only incremental ACS costs to be included in interchange fees (with fraud costs recoverable only by a conditional adjustment), and (2) Congress intended merchants to have multiple unaffiliated routing options for each transaction (including by authentication method), not merely two networks per card.
- The Court reviewed the rule under the APA and Chevron deference framework, concluded Congress’s text and legislative history unambiguously foreclosed the Board’s broader interpretations, granted plaintiffs’ motion for summary judgment, vacated the two challenged provisions, and remanded with vacatur stayed pending further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Scope of allowable costs for interchange fees | Durbin permits only incremental ACS costs per transaction; other costs must be excluded; fraud costs only via separate conditional adjustment | Statute is ambiguous as to costs not explicitly addressed; Board may consider other transaction‑specific costs and included them reasonably | Court held statute unambiguously limits allowable costs to incremental ACS costs; Board exceeded authority and inclusion of fixed ACS, transaction monitoring, fraud losses, and network fees was unlawful |
| Fraud‑prevention costs | Fraud costs are recoverable only through the §1693o‑2(a)(5) conditional adjustment, not as part of the base interchange standard | Board argued transaction‑monitoring and related costs are part of ACS and thus includable; separate rule covers fraud adjustment | Court held Congress intended fraud costs to be handled by the separate conditional adjustment; Board’s inclusion in base fee invalid |
| Inclusion of network processing fees in interchange | Network fees are distinct and Congress limited Board’s authority over network fees; interchange cannot compensate issuer for network fees | Board treated network fees as transaction‑specific and includable in interchange calculation | Court found including network fees contrary to statutory text and structure; impermissible |
| Network non‑exclusivity — routing choices | Congress required merchants to have multiple unaffiliated routing options for each electronic debit transaction (including per authentication method) | Board read statute to require at least two unaffiliated networks enabled per card (not per authentication method); statute ambiguous | Court held statute and legislative history require choice among multiple unaffiliated networks for each transaction; Board’s per‑card rule inconsistent with statute and invalid |
Key Cases Cited
- Chevron v. Natural Resources Defense Council, 467 U.S. 837 (establishes the two‑step framework for agency statutory interpretation)
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment standard)
- Sierra Club v. EPA, 292 F.3d 895 (D.C. Cir. 2002) (standing in rule‑review cases can be self‑evident; record may suffice)
- American Library Ass'n v. FCC, 401 F.3d 489 (D.C. Cir. 2005) (Sierra Club does not require evidentiary submissions in every rule challenge)
- Vill. of Barrington v. Surface Transp. Bd., 636 F.3d 650 (D.C. Cir. 2011) (agency interpretations contrary to clear congressional intent are unlawful)