The Supreme Court ruled Monday that a lawsuit by a North Dakota merchants group challenging a debit card interchange rate set by the Federal Reserve can proceed.

The case, filed in 2021, had been blocked previously because a lower court ruled, and an appellate court agreed, that the complaint was barred by a six-year statute of limitations. But the Supreme Court disagreed in a 28-page opinion issued Monday, saying that the statute of limitations didn’t apply “until the plaintiff is injured by final agency action,” and therefore the lawsuit isn’t extinguished in this instance.

As a result, the plaintiffs, including a Watford City, North Dakota truck stop and convenience store called Corner Post, as well as two trade groups, the North Dakota Petroleum Marketers Association and the North Dakota Retail Association, can proceed with their lawsuit arguing that the Fed has set a debit interchange rate too high. They have argued that a Fed rule permits higher fees than the Administrative Procedure Act allows.

The North Dakota convenience store did not open until 2018, seven years after the Fed’s regulations on debit interchange fees were put in place in 2011. Nonetheless, the store has contended the Fed’s interchange rate was injuring its business.

The rate set by the Fed under Regulation II has been a point of contention for merchants for years following enactment of the rule under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.

For the first time, the Fed last October said it would lower the amount that card issuers can charge merchants when consumers make payments with debit cards. Currently, the cap is set at 21 cents plus 0.05% of the value of the debit transaction, in addition to a one-cent fraud-prevention adjustment. The fee cap applies to banks and financial institutions that issue debit cards and have $10 billion or more in deposits.

The Fed has received pushback from payments companies that argue the proposed debit rate cut is too much, and on the flip side, from retailers and other merchants who contend that the reduction is too little. The central bank was bombarded with public commentary on its proposal.

“The bottom line is that a small business harmed by a faulty regulation should not be denied its day in court based on a technicality, especially one that has been in dispute,” National Retail Federation General Counsel Stephanie Martz said in a statement in commenting on the ruling. “The Federal Reserve set the cap far higher than intended by Congress and merchants like Corner Post have paid millions of dollars too much as a result, in turn driving up prices for their customers.”

Writing for the majority, Justice Amy Coney Barrett noted that the Administrative Procedure Act’s basic presumption is that anyone injured by agency action should have access to judicial review.

Justice Barrett explained that preventing a business that had not yet been injured from bringing suit would be an unfair result. Writing in concurrence, Justice Brett Kavanaugh said a contrary ruling would give agencies the “power to issue rules free from potential suits by unregulated but adversely affected parties – businesses, environmental plaintiffs, workers, the list goes on.”

In dissent, Justice Ketanji Brown Jackson wrote that the Court’s ruling “wreaks havoc on government agencies, businesses, and society at large,” and called the decision “extraordinarily consequential.”

“In one fell swoop, the Court has effectively eliminated any limitations period for APA lawsuits, despite Congress’s unmistakable policy determination to cut off such suits within six years of the agency action,” she said.

By Lynne Marek on July 1, 2024
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