10/19/2024 | Press release | Distributed by Public on 10/19/2024 06:08
BPI and The Clearing House Association filed a motion to intervene this week 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, BPI President and CEO. "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.
Federal Reserve Vice Chair for Supervision Michael Barr recently noted that the Fed can accomplish several important goals by encouraging banks to see reserve balances and reverse Treasury repos as substitutes and by encouraging them to use the Fed's standing lending facilities. These objectives are beneficial. However, Barr also stated that the Fed was basing its approach to liquidity regulations on three principles that are at cross purposes. Moreover, stating that these are "principles" suggests they are not open to public debate.
The objectives
The principles
Barr said that the Fed's approach was based on three principles:
The stakes
The importance of this issue was illustrated by worse-than-normal quarter-end turmoil in the repo market that drove repo rates well above Fed policy rates for several days. The spike in repo rates evoked only very limited borrowing at the Fed's lending facilities and occurred even though banks have more than $3 trillion in reserve balances that could have been redeployed into the repo market.
SEC Commissioner Hester Peirce in a recent speech compared private credit to a harmless cat mistaken for a scary predator - much less alarming than it seems. "When we look at [private credit] from a distance, it seems scary, unfamiliar, and large. Surely, it will do us harm," Peirce said. "Shouldn't we turn back and seek a different path? In reality, Thomas was a mere housecat. Upon closer inspection, private credit is familiar too, as are the associated risks." She added: "We should seek to understand today's private credit, the new forms it is taking, and the attendant risks. But we should not build it up into a monster of our own imagination."
BPI, along with the American Bankers Association, U.S. Chamber of Commerce, Consumer Bankers Association and Mortgage Bankers Association, filed an amicus brief this week in support of Flagstar Bank in Kivett v. Flagstar Bank. The amicus brief urged the U.S. Court of Appeals for the Ninth Circuit to rehear the Kivett case en banc - before the court's full panel of judges.
CFPB Director Rohit Chopra defended the agency's frequent use of guidance rather than formal rulemaking, framing it as a way to clarify expectations rather than to sidestep accountability. Firms can glean clearer answers from guidance rather than having "lawyers shake them down for their own hypothesis," he suggested. "Lawyers can actually be great stewards of the rule of law, they can be officers of the court," Chopra said at a recent fireside chat event. "They can also be leeches on the economy." The CFPB under Chopra has frequently issued circulars, bulletins, interpretive rules and other guidance rather than formal public rulemaking, which requires public notice and comment under the Administrative Procedure Act. During the event, Chopra also dismissed criticism of the agency's frequent use of another tool - enforcement. "I don't really sweat this," Chopra said. "You hear both sides. … 'Don't do enforcement, do regulations and guidance only,' or, 'Don't do regulations and guidance, just do case-by-case enforcement.'"
Concerns about the FDIC's workplace culture and the conduct of its employees and leaders have obscured a more pressing matter: the agency's performance of its mission. Since the Global Financial Crisis, the FDIC has taken on more responsibilities while continuing to perform its core functions, and it appears to be failing on multiple fronts. A fundamental rethinking of its mission is necessary and overdue. New leadership at the agency and in Congress should consider how to reform the FDIC, according to a recent Open Banker op-ed by BPI President and CEO Greg Baer.
Read more here.
BPI, America's Credit Unions and the American Financial Services Association filed an amicus brief recently supporting the plaintiffs in an industry lawsuit against the CFPB that is undergoing appeal in the U.S. Court of Appeals for the Fifth Circuit. The U.S. Chamber of Commerce, American Bankers Association, Consumer Bankers Association and other groups challenged the CFPB over aspects of the Bureau's 2022 update to its Supervision and Examination manual. The broad brush of the CFPB's updated exam manual goes far beyond policing intentional discrimination as required by Congress by redefining violations of the ban on "unfair, deceptive, or abusive act[s] or practice[s]," known as UDAAP, BPI and its trade partners said in the brief.
Through an exam manual update, rather than a formal, fully transparent rulemaking, the CFPB dramatically altered the nature of such violations and required comprehensive reforms to compliance systems. The brief argued that unless the lower court's nullification of the 2022 changes are upheld, they would create confusion, impose significant costs and potentially jeopardize access to certain financial services. The BPI brief asserted that the UDAAP exam manual is a "legislative rule" under the APA, and thus, the Chamber et al. can bring a challenge under the APA on grounds that the 2022 modifications exceeded the CFPB's statutory authority to regulate "unfair" acts or practices.
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Morgan Stanley CEO Ted Pick said this week that the "direction of travel" on bank capital regulations has been "constructive." The bank carries an ample buffer - 160 basis points - because "it's an uncertainty that affects Morgan Stanley," Pick said in an interview this week with Bloomberg TV. "The industry has made its case on where some real modifications should be made and I think the regulators largely are listening," Pick said.
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