Update on D.C. District Court’s Determination to Vacate Key Provisions of Regulation II[1]
On August 14, 2013, Judge Richard J. Leon of the U.S. District Court for the D.C. Circuit held a status hearing regarding NACS v. Board of Governors of the Federal Reserve System (NACS v. Board).[2] In a memorandum opinion released July 31, 2013, the court held that the Board of Governors of the Federal Reserve (“Board”) “clearly disregarded” the intent of Congress in developing the interchange fee limitations and network exclusivity requirements set forth in Regulation II, Debit Card Interchange Fees and Routing (“Regulation II”).[3] In its opinion, the court determined that the only appropriate remedy was to vacate the specific provisions of Regulation II at issue and to remand to the Board for development of regulations that meet the statutory standard. However, in recognition of the disruptive effect of the ruling on regulated entities and their commercial relationships, the court stated that it would stay the vacatur of Regulation II in order to permit the Board to develop replacement regulations.
In the August 14 hearing, Judge Leon made clear that his intended purpose for the hearing was to discuss the appropriate duration of the stay of vacatur and whether the Board could issue interim regulations to address the “deficiencies” of Regulation II, including the timeframe within which the related rulemaking process could take place. The attorney for NACS indicated that his client believed that the Board had the authority to issue an interim final rule, and that NACS would support such a rulemaking. Judge Leon suggested that he believed that the Board should be able to enact an interim final rule by the end of August and, after a 30-day comment period, have a final rule in place by the end of October.
However, the attorney for the Board stated that she could not provide the Board’s position on whether it could issue an interim final rule, or the timeframe within which it could do so, as the Board has not yet made a determination on these issues. The attorney for the Board also indicated that the Board had not yet decided whether it would appeal the court’s ruling. While Judge Leon indicated that he had expected the parties to be prepared to address these substantive questions during the August 14 status hearing, the attorney for the Board stated it was her belief that the purpose of the hearing was solely to discuss the schedule for briefing the court on these issues.
Judge Leon, who appeared frustrated by the inability of the Board’s counsel to answer his questions, stated that the stay of vacatur was only effective until August 14, but that he would continue it for one additional week. He set a follow-up hearing for Wednesday, August 21, 2013, at which he ordered Scott Alvarez, the Board’s general counsel, to appear. Judge Leon explained that he expected the Board’s counsel to be prepared to provide the Board’s position during the August 21 hearing on whether the Board could issue an interim final rule and the timeframe within which the rulemaking process could occur. The parties and amici curiae will then have until August 28 to submit briefs on these issues.
Separately, Judge Leon requested that the parties brief the court on the appropriate remedy to account for interchange fees overcharged to merchants under deficient Regulation II, and if such a remedy includes returning overcharged funds to aggrieved merchants, how the appropriate amounts should be calculated and distributed. Briefs on these issues are due on September 16, 2013.
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[1] This advisory supplements our advisory regarding the court’s memorandum opinion, available at http://www.alston.com/advisories/NACS-v-Board.
[2] NACS v. Bd. of Governors of the Fed’l Res. Sys., No. 11-02075, Mem. Op. Jul. 31, 2013.
[3] 12 C.F.R. part 235.
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