Court ruling favors retailers, puts consumer payment security at risk

In a blow to consumer protection and fair-market competition, the U.S. District Court for the District of North Dakota sided with large retailers in Corner Post v. Fed, ruling that the Federal Reserve exceeded its authority when it included fraud-loss adjustments and other essential costs in its 2011 debit interchange rule. The decision effectively rewards retailers who’ve long pushed to slash interchange costs, even as they bear no statutory responsibility for protecting consumer payment data. 

As a result, the Fed’s 2011 interchange rule has been vacated but covered debit issuers will still need to comply with Regulation II despite the rule being declared unlawful. Debit interchange remains capped under existing Reg II, pending resolution of a Fed appeal to the Eighth Circuit.  

The court’s order also does not prevent the Fed's pending Reg II rulemaking—which would lower the debit interchange fee—from taking effect if finalized.  

"By excluding fraud losses and other costs from the interchange calculation, this court decision creates more uncertainty that will ultimately hurt consumers. Proponents of the Durbin Amendment claimed consumers would see savings with this government-imposed price control on interchange. We haven't seen that savings in nearly 15 years, while fraud continues to grow. Instead, big box retailers and merchants have lined their own pockets without any statutory responsibility to protect consumers from fraud,” said Jim Nussle, America’s Credit Unions President/CEO.
 
Retailers have lobbied aggressively to shift payment system costs onto credit unions and banks, while reaping the benefits of interchange without making comparable investments in fraud prevention. While America's Credit Unions continues to oppose the need for interchange regulation in the first place, this ruling marks a step backward in ensuring a safe, sustainable payments ecosystem. America’s Credit Unions will continue to fiercely defend credit unions against the dilution of interchange fee income on all fronts.  

Notably, the decision leans on Loper Bright Enterprises v. Raimondo, which overturned the “Chevron doctrine”, eliminating agency deference and opening the door for more litigation. Litigation on this issue began about 14 years ago.