WASHINGTON – The Federal Reserve announced yesterday that it will appeal a recent ruling by Judge Richard Leon of the U.S. District Court for the District of Columbia that says the Fed’s regulation implementing the Durbin Amendment violates the Administrative Procedure Act, which governs the way federal agencies propose and establish regulations.

CNN reports that Federal Reserve attorneys asked Judge Leon to keep the current 21-cent cap in place until an appeals court weighs in. The judge said he was "more inclined to go with his initial order and keep the Federal Reserve rule struck, even if it opens the door for Visa and MasterCard to collect more, as much as 50 cents, on swipe fees."

According to Judge Leon in his July 31 ruling, the Fed’s final debit fee regulation departed from the language of the law (i.e., the Durbin Amendment) in two key respects:

• The Fed included costs in its calculation of allowable interchange fees that were not allowed to be included by Congress. The only costs to be included, according to the Court, are the incremental costs incurred by the issuing bank in authorizing, clearing and settling a debit transaction.
• The Court found that the Fed did not allow for network competition on every debit transaction as required by the law. Instead, the Fed merely required that two debit networks be active on each debit card — even though those networks could be limited to PIN or signature transactions such that the two networks would never compete for any actual debit transaction.

Now that the Fed has opted to appeal the decision, the current rule is likely to remain in place while the appeal is pending. This process could take a year or more to get resolved.