How Loper Bright Will Impact Debit Cards and Other Financial Products in the U.S.   

The Supreme Court of the United States (SCOTUS) recently overturned Chevron deference, a longstanding doctrine whose removal marks a monumental shift in the judicial landscape.  

The Chevron doctrine required courts to defer to a federal agency’s interpretation of ambiguous federal statutes—a power that largely enabled the expansion of the administrative state. The recent ruling in Loper Bright Enterprises v. Raimondo hands the power of statutory interpretation back to the judicial branch of government.  

Chevron deference allowed federal agencies to expand their regulatory reach, often with little to no input from Congress. This resulted in a proliferation of regulations that carry significant economic, social, and political consequences—many of which agencies implemented without the rigorous scrutiny that should accompany decisions of such magnitude.  

The Federal Reserve’s (Fed) proposed rule to amend Regulation II, which governs debit card interchange fees, is a prime example of the risks associated with unchecked regulatory authority. The Fed is proposing to review the debit card interchange fee cap every other year for banks and credit unions with consolidated assets exceeding $10 billion. These adjustments would entail reducing the base component of the interchange fee from 21 cents to 14.4 cents, decreasing the ad valorem component from 5 basis points to 4 basis points, and slightly increasing the fraud prevention portion of the fee.  

The Fed is planning to evaluate the interchange fee cap biennially without any additional public comment or stakeholder engagement. As enacted in the Dodd-Frank Act in 2010, the Durbin Amendment never explicitly asked the Fed for a biennial evaluation of debit card interchange fees. By granting itself the authority to adjust interchange fees without public oversight, the Fed is effectively positioned to control fees charged on debit cards issued in the U.S. Such price controls are antithetical to the principles of a free-market economy and raise serious concerns about the potential for market distortion. The resulting uncertainty could have far-reaching consequences, not only for large financial institutions but also for small businesses, community banks, and consumers who rely on these services. 

The broader economic impact of such regulatory overreach cannot be ignored. Price controls, like those proposed for interchange fees, often lead to market distortions and unintended consequences. The Federal Reserve Bank of Richmond’s study following the enactment of the Durbin Amendment found only a small fraction of merchants passed on cost savings to consumers. Contrary to the expectations set by proponents of the regulation, the Richmond Fed’s study vindicated conventional economic theory. According to some economists, the Durbin Amendment forced consumers to pay higher costs on bank accounts and increased the number of unbanked by 1 million people. The proposed biennial adjustments to the interchange fee cap could exacerbate these issues, leading to higher costs for consumers and fewer choices in the marketplace.  

Moreover, the Fed’s lack of a comprehensive cost-benefit analysis, coupled with the absence of a clear rationale for biennial adjustments, calls into question the validity and necessity of the proposed changes.  

The proposed adjustments to the interchange fee cap raise significant legal and constitutional concerns. Lawmakers enacted the Administrative Procedure Act (APA) to ensure that federal agencies engage in reasoned decision-making grounded in a thorough examination of relevant data and stakeholder input. The Fed’s proposed biennial review, which circumvents the traditional notice-and-comment process, is likely arbitrary, capricious, and an abuse of the Fed’s discretionary authority.  

SCOTUS found that “Chevron was inconsistent with the APA’s requirement that courts, not agencies, decide questions of law applicable to agency action.” In a post-Chevron world, the court reviewing the rule will not have to defer to the Fed if it finds Dodd-Frank to be ambiguous. The court would make its own interpretation of Dodd-Frank and determine if the changes to Regulation II are aligned with congressional intent.  

It is ATR’s view that the automatic biennial evaluations of the debit card interchange fee cap lack a clear congressional mandate. The Fed’s proposed rule may contravene the major questions doctrine reaffirmed in SCOTUS’s decision in West Virginia v. EPA. This doctrine holds that decisions of vast economic and political significance require “clear congressional authorization.” The proposed rule renders the action susceptible to legal challenges on the grounds that it is an abuse of the Fed’s statutory authority.  

It is essential that Congress curtail the overreach of the Fed and other federal regulatory agencies. Rules in addition to Regulation II, such as the Securities and Exchange Commission’s (SEC) rules on money market funds and climate risk disclosures; the Consumer Financial Protection Bureau’s (CFPB) rules on credit card late fees, overdraft fees, and non-sufficient funds fees; the Internal Revenue Service’s (IRS) rule on tax reporting for digital assets; the Department of Labor’s (DOL) rule allowing consideration of ancillary ESG factors in retirement plans; and the Federal Trade Commission’s (FTC) rule to arbitrarily enhance reporting requirements for mergers and acquisitions under the Hart-Scott-Rodino Antitrust Improvements Act could all be impacted by the Chevron doctrine’s demise.  

Legislative action is necessary to ensure that regulatory decisions, particularly those with significant economic impacts, are made with transparency, accountability, and adherence to the constitutional principles of separation of powers. Loper Bright repealed Chevron deference, but it preserved Skidmore. Under Skidmore, a court may consider an agency’s rules, guidance, and interpretive opinions when reviewing an agency action. However, there is no automatic deference. Additionally, in 2019, SCOTUS preserved Auer deference, which is a “doctrine that required courts to defer to agency interpretations of ambiguous regulations (as opposed to statutes).” The preservation of Skidmore and Auer justifies the need for statutory codification of de novo review of agency rules. Enacting Sen. Eric Schmitt’s (R-Mo.) Separation of Powers Restoration Act (SOPRA) would apply a de novo standard under the APA when a court reviews an agency’s final rule.    

In the U.S. Senate, Sen. Schmitt is leading the charge against the administrative state. In addition to introducing SOPRA, he also established a working group to explore how the executive branch will function in a post-Chevron world. Rep. Scott Fitzgerald (R-Wis.) is another leader who already led SOPRA through the U.S. House of Representatives.  

The Loper Bright decision is a pivotal moment that provides Congress with the opportunity to reassert its Article One authority and ensure that the executive branch operates within its constitutional parameters. The risks associated with unchecked regulatory power are too great to ignore—particularly in the financial sector. 

Congressional action is essential to protect consumers, small businesses, and financial institutions.  ATR strongly urges Congress to take decisive steps to address these issues and restore the appropriate balance of power among the three branches of government. Passing SOPRA and scrutinizing rules that relied on Chevron deference and clearly circumvented congressional intent is the best way to restore the separation of powers. It will also foster a regulatory environment that promotes innovation, competition, and economic growth.