## Facts

- Debit-card transactions generate interchange fees paid by merchants’ acquiring banks to card issuers’ banks, producing substantial revenue for issuers and networks.
- Congress enacted the Durbin Amendment, 15 U.S.C. § 1693o-2, directing the Federal Reserve Board to ensure debit interchange fees are “reasonable and proportional” to issuer costs “with respect to the transaction,” to consider incremental authorization/clearance/settlement costs, and to permit an adjustment for fraud-prevention costs under specified conditions.
- The statute also prohibits network exclusivity and certain routing restraints, requiring each debit card to be enabled on at least two unaffiliated networks.
- The Board issued Regulation II, capping interchange fees for large issuers at $0.21 plus 0.05% of the transaction amount, with a potential $0.01 fraud-prevention adjustment.
- Regulation II’s network provisions required two unaffiliated networks per card but permitted configurations in which one network handled PIN transactions and another handled signature transactions.
- Merchant trade associations and individual merchants sued, arguing the Board’s fee cap improperly included costs beyond incremental transaction costs and the routing rules failed to ensure meaningful routing choice.
- The district court granted summary judgment to the merchants and set aside both the fee and routing rules.
- The Board appealed.

## Issues

1. Whether, under 15 U.S.C. § 1693o-2(a), the Board permissibly determined which issuer costs may be included in a “reasonable and proportional” interchange-fee cap.
2. Whether Regulation II’s network exclusivity and routing rules reasonably implemented the Durbin Amendment’s requirement for at least two unaffiliated networks.
3. Whether the Board adequately explained the inclusion of transaction-monitoring costs within allowable costs, given the statute’s separate fraud-prevention adjustment framework.

## Decision

- The D.C. Circuit reversed most of the district court’s judgment and applied Chevron deference to the Board’s statutory interpretations.
- The court upheld the interchange-fee cap methodology as generally reasonable, allowing the Board to include certain costs beyond strictly incremental authorization/clearance/settlement costs.
- The court upheld the network exclusivity/routing rules, rejecting the argument that two unaffiliated networks must be available for each authentication method or for each transaction type.
- The court remanded, without vacating the rule, for the Board to further explain its treatment of transaction-monitoring costs.

## Legal Principles

- Under Chevron, if a statute does not unambiguously resolve the precise interpretive question, a reviewing court sustains an agency’s interpretation that is reasonable.
- A statutory command to “consider” incremental costs does not necessarily limit the agency to only those costs absent clear limiting language.
- An agency may implement a “reasonable and proportional” fee standard by selecting cost categories it deems sufficiently related to the transaction, so long as the choice is a reasonable construction of the statute.
- A separate statutory mechanism for fraud-prevention adjustments may require a reasoned explanation when the agency allocates fraud-related costs between the base fee cap and the adjustment.
- For network exclusivity and routing restraints, requiring two unaffiliated networks per card can be a permissible implementation even if not every network supports every authentication method, absent clear statutory language to the contrary.

## Conclusion

The D.C. Circuit largely sustained the Federal Reserve Board’s Regulation II under Chevron, holding that the Board reasonably set the debit interchange-fee cap and implemented the statute’s routing and exclusivity provisions, while remanding only for a fuller explanation of how transaction-monitoring costs fit within the Durbin Amendment’s cost and fraud-prevention structure.


NACS v. Board of Governors of the Fed. Rsrv. Sys., 746 F.3d 474 (D.C. Cir. 2014)