On September 15, the U.S. District Court for the Eastern District of Kentucky granted summary judgment in favor of the Fed, upholding the Board’s regulation which caps debit card interchange fees. The regulation in question — Regulation II (“eye-eye”) — was adopted under the Durbin Amendment to the EFTA. The Durbin Amendment directs the Fed to ensure that interchange transaction fees charged by banks with at least $10 billion in assets are “reasonable and proportional” to the issuer’s cost for each transaction.

The plaintiff argued that Regulation II was inconsistent with the authorizing statute, claiming the rule improperly includes certain costs and applies a universal cap rather than a transaction- and issuer-specific standard. The Fed, however, considered a range of costs — including fixed processing costs, transaction monitoring, fraud losses, and network processing fees — when setting the cap at 21 cents per transaction plus an ad valorem adjustment. The plaintiff also contended that the regulation was arbitrary and capricious, asserting the Fed failed to adequately compare debit card and checking transactions and relied on hypothetical costs. The court found that the Fed had sufficiently considered relevant factors, noting the plaintiff’s disagreement with the Fed’s conclusions does not establish a failure to address important aspects of the issue.

Ultimately, the court rejected the plaintiff’s arguments, finding that Regulation II is neither contrary to law nor arbitrary and capricious. The court declined to invoke the major questions doctrine, reasoning that the large volume of debit card transactions or broad economic impact alone does not suffice. As a result, the Fed’s motion for summary judgment was granted, and the plaintiff’s motion was denied, leaving the current interchange fee standard in place.

As previously covered by InfoBytes, the U.S. District Court for the District of North Dakota reached the opposite conclusion in a case also challenging Regulation II. In that case, the court ruled that Regulation II contravenes Congress’s intent, and that the Fed exceeded its statutory authority granted to it by the Durbin Amendment.  Both cases are subject to possible appeal.