The Defense Credit Union Council (DCUC) just teamed up with some of the biggest names in banking and credit unions to file what’s called an amicus brief—basically a “hey, we have something important to say about this” legal document—asking a federal appeals court to keep existing debit card fee rules exactly where they are.
The coalition reads like a who’s who of financial institutions: the American Bankers Association, America’s Credit Unions, Association of Military Banks of America, Consumer Bankers Association, Defense Credit Union Council, Independent Community Bankers of America, and the Mid-Size Bank Coalition of America. They’re all pushing back against an appeal that challenges how the Federal Reserve has been interpreting the Durbin Amendment and its implementation through something called Regulation II.
What’s Actually at Stake Here?
Think of Regulation II as the rulebook that governs those tiny fees (called interchange fees) that happen behind the scenes every time you swipe your debit card. The regulation, which has been in place since 2011, ensures these fees stay “reasonable and proportional” to what it actually costs banks and credit unions to process your transaction—things like authorization, clearing, settling, fraud prevention, and keeping the whole system running smoothly.
According to the coalition’s brief: “Congress thus directed the Board to issue regulations ensuring that interchange fees for debit card transactions would be ‘reasonable and proportional’ to issuers’ costs. Following that directive, and after an extensive rulemaking process, the Board issued Regulation II in 2011.”
Here’s the thing: this isn’t even new legal territory. A merchant trade association already challenged this regulation back in 2014, making pretty much the same arguments. The D.C. Circuit Court looked at it, thought about it, and said “nope, the Federal Reserve got it right.” For more than a decade since then, financial institutions have been making major investments in payment processing infrastructure, fraud prevention systems, and transaction security based on this settled understanding.
Enter Linney’s Pizza (Yes, Really)
Now, almost 15 years after Regulation II was established, a pizza chain called Linney’s Pizza—along with some merchant trade associations—wants to flip the script. They’re essentially trying to resurrect those same arguments that already lost in court back in 2014, claiming the Federal Reserve improperly included certain costs when calculating the interchange fee cap.
A district court in Kentucky already rejected these arguments earlier this year, but here we are in appeals court. The coalition isn’t mincing words about what they think would happen if Linney’s Pizza wins this one.
Why You Should Care (Even If Legal Briefs Aren’t Your Thing)
The amici—that’s lawyer-speak for “friends of the court” filing the brief—argue that debit cards have become absolutely critical to how the U.S. economy functions. They’re secure, convenient, and accepted pretty much everywhere. But that convenience doesn’t just happen by magic. It requires massive ongoing investments in payment processing infrastructure, fraud detection systems, network connectivity, and authorization capabilities.
If the court sides with Linney’s Pizza and forces the Federal Reserve to dramatically slash the interchange fee cap, the coalition warns we’d see some pretty ugly consequences. Financial institutions would essentially be forced to process debit card transactions at a loss—which is neither “reasonable” nor “proportional,” despite what those terms are supposed to mean.
The brief pulls no punches: “Linney’s Pizza’s construction of the statute cannot be squared with its text, structure, and purpose, nor with well-established constitutional and statutory interpretation principles. And Linney’s Pizza’s interpretation would produce absurd results, requiring issuers to facilitate debit transactions at a substantial loss.”
The Domino Effect Nobody Wants
So what happens when banks and credit unions can’t cover their costs? Well, they have to make that money up somewhere. The coalition argues we’d likely see higher account fees, reduced access to debit card products, fewer financial services overall, and less investment in the fraud prevention and cybersecurity protections that keep your money safe.
And here’s a kicker that might surprise you: the coalition points out that when interchange fees have been reduced in the past, merchants haven’t exactly been rushing to pass those savings on to consumers. Instead, it’s been more of a windfall for the merchants themselves while consumers end up paying more in other ways.
Community financial institutions and credit unions could get hit especially hard. While many smaller institutions are technically exempt from Regulation II’s interchange fee cap, market pressures have already squeezed interchange revenue across the industry. Additional pressure would disproportionately impact community-based institutions that depend on those revenues to offer affordable financial services and member benefits.
The Numbers Don’t Lie
Want some cold, hard facts? According to the Federal Reserve’s own data cited in the brief, only 77 percent of issuers currently recover their “allowable” base component costs under Regulation II. And those base costs are just a subset of the full costs associated with debit transactions.
As the coalition puts it: “Issuers are obviously not earning exorbitant profits from debit card transactions while operating under a regulatory regime that does not even allow all issuers to recover all of their costs.”
The reality is that financial institutions are already making tough choices about where to allocate their capital—choosing between innovating in the payment system and offering free or low-cost banking services to consumers.
What DCUC Has to Say
“The stakes extend far beyond interchange policy,” says Jason Stverak, DCUC Chief Advocacy Officer. “At issue is the ability of credit unions to continue providing secure payment services, investing in emerging threats and technologies, and delivering value to the members and communities they serve. Weakening the existing framework would create uncertainty throughout the payments ecosystem while threatening services that millions of Americans rely upon every day.”
The Bottom Line
This coalition is essentially arguing for regulatory stability. Regulation II has been in effect since 2011, courts have repeatedly said it’s fine, and the entire payments ecosystem has been built around this framework for over a decade. Changing the rules now would create massive uncertainty and disruption for everyone involved—consumers, merchants, and financial institutions alike.
The coalition is urging the Sixth Circuit to affirm the district court’s decision and keep things as they are, preserving a balanced, competitive, and secure debit card marketplace that’s been working pretty well for everyone (except maybe Linney’s Pizza’s legal team).
Sometimes the most important legal battles are the ones fighting to keep things stable rather than shake everything up. This appears to be one of those times.