New York and Washington, D.C. — The Bank Policy Institute (BPI) and The Clearing House Association filed a motion to intervene today in Corner Post, Inc. v. Board of Governors of the Federal Reserve System. Corner Post, a North Dakota truck stop, is challenging the Federal Reserve’s 2011 rules governing debit interchange revenue established pursuant to the “Durbin Amendment” in the Dodd-Frank Act. Corner Post, initially joined in the litigation by a coalition of retail merchant trade associations, argues the 2011 interchange rules are contrary to the Durbin Amendment. BPI and The Clearing House Association are requesting to intervene in the case alongside the Federal Reserve to defend against Corner Post’s challenge to the rule.

“Banks oppose the Durbin Amendment’s price fixing requirement as a matter of policy but stand with the Federal Reserve to defend the legality of its 2011 implementing regulation,” stated Greg Baer, President and CEO, BPI. “Retail groups challenged this very same rule over a decade ago in the DC Circuit and lost. The law requires the Fed to set a ‘reasonable and proportional’ limit based on the cost incurred by the debit card issuer. We will demonstrate that the plaintiff’s arguments are legally deficient, and the statute clearly supports the Fed’s 2011 rule.”

“Not satisfied with the multibillion-dollar windfall the Federal Reserve’s 2011 rule granted them, large corporate merchants have been suing the Fed to lower the interchange cap ever since it was created,” said David Watson, President and CEO, The Clearing House. “The Clearing House Association is again appearing in court to ensure that merchants pay their fair share to support the convenience and safety that the debit card networks provide them and the U.S. economy.”

Here is our position:
The Corner Post case is part of a nationwide legislative, regulatory, and litigation effort instigated by retail trade associations to reduce debit interchange rates. Retail trade associations petitioned the Federal Reserve to lower interchange rates in December 2022, and the Fed proposed amendments to Regulation II in October 2023 to do just that. These groups also helped get the Illinois Interchange Fee Prohibition Act passed earlier this year, which prohibits interchange fees on any tax or gratuity paid for using a debit or credit card in Illinois. This law is currently being challenged in the case Illinois Bankers Association et al. v. Raoul.

As the Office of the Comptroller of the Currency argued in its recent amicus brief challenging the Illinois law, “interchange fees play a vital role in enabling banks to protect against fraud, cover the costs of transaction processing, and provide other valuable consumer services.” Studies also show merchants benefit significantly from debit card services through higher sales, greater customer reach, faster checkouts, enhanced security, easier recordkeeping, and happier customers. Prohibiting banks from charging reasonable and proportional interchange would undermine investments in new technology to maintain this system and mitigate and prevent fraud.

What’s the background?
Regulation II, promulgated in 2011, requires the Federal Reserve to set standards for assessing whether debit card interchange revenue is “reasonable and proportional” to the cost incurred by the debit card issuer. Corner Post challenged this rule in 2021, arguing the Federal Reserve’s 2011 rate cap is contrary to the Durbin Amendment. However, Corner Post’s underlying challenge was dismissed as untimely because the suit was brought after the six-year statute of limitations under the Administrative Procedure Act had run.

In a landmark U.S. Supreme Court decision, the Court determined that the statute of limitations begins when the plaintiff is harmed rather than when the rule was issued. While Regulation II was promulgated in 2011, Corner Post did not open for business until 2018; therefore, Corner Post’s alleged harm occurred within the six-year timeframe and their challenge was within the statute of limitations. As a result of the Supreme Court’s opinion, the district court in North Dakota is now considering Corner Post’s challenge to the Fed’s rule.

The motion was filed in the United States District Court for the District of North Dakota. The case is 1:21-cv-95-DMT-CRH.

Media Contacts:
Austin Anton
Bank Policy Institute
austin.anton@bpi.com

Greg MacSweeney
The Clearing House Association
gregory.macsweeney@theclearinghouse.org

About Bank Policy Institute
The Bank Policy Institute is a nonpartisan public policy, research and advocacy group that represents universal banks, regional banks and the major foreign banks doing business in the United States. The Institute produces academic research and analysis on regulatory and monetary policy topics, analyzes and comments on proposed regulations, and represents the financial services industry with respect to cybersecurity, fraud and other information security issues.

About The Clearing House Association
The Clearing House Association L.L.C., the country’s oldest banking trade association, is a nonpartisan organization that provides informed advocacy and thought leadership on critical payments-related issues. Its sister company, The Clearing House Payments Company L.L.C., owns and operates core payments system infrastructure in the United States, clearing and settling more than $2 trillion each business day.