Supreme Court Just Says No To The Retailer’s Swipe Fee Fight

The Supreme Court on Monday turned away the retailers’ challenge to the Federal Reserve’s regulation implementing the interchange-cap and network-exclusivity rules adopted in the Durbin Amendment to Dodd-Frank.  The case was closely watched, because the trial judge held the Federal Reserve regulation invalid and ordered the Federal Reserve to write a new regulation imposing much lower caps.  The Federal Reserve appealed that decision to an appellate court, which accepted the Federal Reserve’s arguments in support of its regulation.

When the case came to the Supreme Court, the retailers argued that the Court should hear it because of the huge amounts of money at stake and because (in their view) the regulation set such a high fee cap that it flagrantly watered-down the intended effect of the Durbin amendment.  Senator Durbin even filed an amicus brief telling the Justices that he agreed with the retailers that the Federal Reserve had set the cap far too high!  But in the end the Supreme Court decided not to review the case.

That pretty conclusively ends the retailers’ challenge to the regulation.

At this point, the Federal Reserve can proceed with full implementation of the regulation it devised.  Having failed to persuade the Federal Reserve or the courts of their position, the retailers’ only recourse now is with Congress – and there is some reason to think that a Congress controlled by Republicans will not race to the aid of the retailers.

Perhaps the most puzzling thing about the dispute is the retailers’ tone of outrage at the height of the fee caps that the Federal Reserve selected (and the courts have approved).

When the Federal Reserve first proposed the regulation, it produced a blizzard of similarly apoplectic complaints from the banking industry complaining that the caps were ridiculously low and that they would wreak all sorts of havoc on the industry.  I would think that an external observer would conclude that the sense of outrage shared by the retailers (wanting lower caps) and the banks (wanting higher caps) suggested that the Federal Reserve has gotten this about right.

To some degree I think that sentiment lies at the heart of the appellate court’s decision.  The Federal Reserve had a thankless task, attempting to implement a statute that was poorly drafted and in a variety of ways internally inconsistent – no surprise given its last-minute addition to Dodd Frank.  I don’t think any solution was available to the Federal Reserve that would have been faithful to every word in the statute presented to it.  It developed a regulation that lowered the fee caps considerably.

The courts can’t possibly do a better job so nobody should be surprised they ultimately declined to try.