The Supreme Court ruled 6-3 on July 1 that a retailer can challenge the fees the Federal Reserve System allows banks to charge for processing debit card transactions, despite not filing the challenge before the usual six-year cutoff.
Dissenting were Justices Sonia Sotomayor, Elena Kagan, and Ketanji Brown Jackson.
The respondent, the Federal Reserve System, is the central bank of the United States. Among its primary responsibilities are national monetary policy, supervising and regulating banks, maintaining financial stability, and providing banking services. The Federal Reserve also regulates credit cards.
The petitioner, the Corner Post, is a truck stop in Watford City, North Dakota, that filed a lawsuit challenging the Fed’s 2011 ruling on debit card fees.
Retail stores often impose minimum purchase requirements to make up for the percentage of sales they have to pay credit card issuers on transactions. The processing fees paid to issuers are determined by the Federal Reserve.
Congress approved the Durbin Amendment as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 that followed the so-called Great Recession of 2008. The amendment allowed the Fed to regulate “interchange fees” to reimburse large banks for expenses involved in transferring money from consumer accounts to merchants as part of debit card transactions.
Until 2010, interchange fees were determined by the issuers that process the transactions. The issuers had an incentive to boost the fees to compete for banks’ business, and those fees were passed on to merchants.
In 2011, the Fed made a rule that large banks could charge 21 cents per transaction as well as 0.05 percent of the value of the purchase.
“That means big banks have made an average profit of between 16 cents and 17.4 cents for virtually every one of 80 billion debit-card transactions every year since 2011—or at least $12 billon [sic] per year in profits.”
The Fed has never explained “how a fee cap resulting in bank profits of between 320 percent and 483 percent per transaction is ’reasonable and proportional to the cost incurred by the [bank] issuer with respect to the transaction.'”
Two trade associations in North Dakota protested the fee structure and sued.
When the Fed filed a motion to dismiss the groups’ complaint, it argued that the lawsuit was barred because the rule had been issued too long ago. The groups amended the complaint to add the Corner Post, which opened for business in 2018, as a party to the lawsuit.
The litigants argued that the Corner Post’s claim “first accrued” for purposes of the Administrative Procedure Act’s (APA) six-year statute of limitations when it processed its first debit card transaction in 2018, seven years after the Fed’s rule was enacted.
A statute of limitations stipulates the maximum time that parties have to initiate legal proceedings after the act complained of takes place.
The APA is a federal statute enacted in 1946 that governs administrative law procedures for federal executive departments and independent agencies. The late U.S. Sen. Pat McCarran (D-Nev.) said the APA was “a bill of rights for the hundreds of thousands of Americans whose affairs are controlled or regulated in one way or another by agencies of the federal government.”
A federal district court in North Dakota threw out the lawsuit.
The U.S. Court of Appeals for the Eighth Circuit affirmed, finding that under the APA, the clock began running when the Fed issued its rule in 2011. The circuit court found that a claim against an agency regulation “first accrues” when the agency issues its rule, regardless of whether the plaintiff was in existence at the time. Other federal courts of appeal arrived at different conclusions in similar cases.
“But the government says that Corner Post’s clock to challenge those fees actually started in 2011, seven years before Corner Post pumped a single gallon of gas. The government is wrong. Corner Post’s clock started when it swiped its first debit card and paid its first fee,” the lawyer said.
Representing the Fed, U.S. Department of Justice attorney Benjamin W. Snyder said the courts of appeal have “consistently recognized” that the six-year statute of limitations on an APA claim “accrues” when the agency takes action, not when “a particular plaintiff comes within the relevant statute’s zone of interests.”
The Corner Post is asking the Supreme Court “to reject that settled practice.” If the justices agree with that argument the result would be “destabilizing,” Mr. Snyder said.
