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Federal judge strikes down cap on debit card transaction fees

A judge for the US District Court for the District of Columbia [official website] on Wednesday struck down [opinion, PDF] Regulation II (Debit Card Interchange Fees and Routing) [text, PDF] of the Federal Reserve [official website], which held that the maximum interchange fee a bank can receive from a single debit card transaction is 21 cents. US District Judge Richard Leon said that the Federal Reserve had misinterpreted the Durbin Amendment of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act [text], which requires banks with more than $10 billion in assets to charge debit card interchange fees that are "reasonable and proportional to the actual cost" of processing the transaction. According to Leon, the purpose of the Durbin Amendment was to limit interchange fees to the actual cost of processing debit card transactions. Although the Federal Reserve's initial proposal [text, PDF] included a cap of 12 cents per transaction, the final rule was expanded to cover the cost of equipment and fraud-prevention technology, which the court held to be improper.

The Dodd-Frank Act was signed into law [JURIST report] by President Barack Obama in July 2010 and created the new regulatory council to monitor financial institutions in order to prevent companies from becoming "too big to fail." In addition to creating the US Financial Stability Oversight Council (FSOC) [official website], the legislation also gives the Federal Reserve new oversight over the largest financial institutions, creates a bureau of consumer protection, introduces multitudes of new regulations on derivatives and other financial instruments, tasks the Commodity Futures Trading Commission (CFTC) [official website] with regulating the derivatives market, and limits the amount of capital banks can invest in hedge funds. JURIST contributor Andrew Cali-Vasquez argues that position limit regulations may carry unexpected consequences [JURIST op-ed] that "could impinge upon the operations of domestic businesses by reducing the availability of financing." JURIST Guest Columnist Louise Bennetts gives a critique of Dodd-Frank [JURIST op-ed], arguing that its framework gives regulators considerably leeway to implement its measures as they see fit.

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