UNITED STATES DISTRICT COURT DISTRICT OF SOUTH DAKOTA

SOUTHERN DIVISION_____________________________________

TCF NATIONAL BANK,

Plaintiff,

v.

BEN S. BERNANKE, et al.,

Defendants._____________________________________

)))))))))))

No. 4:10-cv-04149-LLPJudge Lawrence L. Piersol

BRIEF AMICI CURIAE OF THE CLEARING HOUSE ASSOCIATION L.L.C., AMERICAN BANKERS ASSOCIATION, CONSUMER BANKERS ASSOCIATION,

CREDIT UNION NATIONAL ASSOCIATION, THE FINANCIAL SERVICES ROUNDTABLE, INDEPENDENT COMMUNITY BANKERS OF AMERICA, MID-SIZE BANK COALITION OF AMERICA, AND NATIONAL ASSOCIATION OF FEDERAL

CREDIT UNIONS IN SUPPORT OF PLAINTIFF TCF NATIONAL BANK

Roger W. DamgaardJames A. PowerWOODS, FULLER, SHULTZ & SMITH, P.C.300 S. Phillips Ave., Suite 300Sioux Falls, SD 57104(605) 336-3890Roger.Damgaard@WoodsFuller.comJim.Power@WoodsFuller.com

Seth P. WaxmanSteven P. LehotskyWILMER CUTLER PICKERING

HALE AND DORR LLP1875 Pennsylvania Avenue, NWWashington, DC 20006

Christopher R. LipsettNoah A. LevinePamela K. BookmanWILMER CUTLER PICKERING

HALE AND DORR LLP399 Park AvenueNew York, NY 10022

Paul Saltzman Rob HunterTHE CLEARING HOUSE ASSOCIATION L.L.C. 450 West 33rd StreetNew York, NY 10001

H. Rodgin CohenMatthew A. SchwartzSULLIVAN & CROMWELL LLP 125 Broad StreetNew York, NY 10004

Attorneys for Amicus The Clearing House Association L.L.C.(Additional counsel for Amici listed on signature pages)

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TABLE OF CONTENTS

Pages

TABLE OF AUTHORITIES ..................................................................................................... iii

INTEREST OF AMICI CURIAE................................................................................................. 1

BACKGROUND........................................................................................................................ 2

I. THE DURBIN AMENDMENT............................................................................................... 2

II. THE BOARD’S ACTION ..................................................................................................... 4

III. THE TRADE ASSOCIATIONS’ COMMENT LETTER ............................................................... 5

SUMMARY OF ARGUMENT .................................................................................................. 6

ARGUMENT ............................................................................................................................. 8

I. THE DURBIN AMENDMENT DOES NOT AUTHORIZE THE BOARD TO PRECLUDE ISSUERS FROM RECEIVING AN INTERCHANGE FEE SUFFICIENT TO COVER THE ISSUER’S COSTS PLUS A REASONABLE RATE OF RETURN........................................................................... 8

A. The Statutory Text Requires The Board To Establish Standards That Allow For Interchange Fees Covering Both An Issuer’s Costs And A Reasonable Rate Of Return .................................................................................................... 9

B. Interpreting The Durbin Amendment To Allow A Reasonable Rate Of Return Is Further Necessary To Avoid Serious Constitutional Concerns ............ 12

C. The Board’s Action Contravenes The Statute Because It Caps Interchange Fees Below An Amount Sufficient To Cover An Issuer’s Costs Plus A Reasonable Rate Of Return................................................................................ 13

II. THE BOARD’S INTERPRETATION RAISES SERIOUS CONSTITUTIONAL CONCERNS UNDER THE DUE PROCESS AND TAKINGS CLAUSES.................................................................... 14

A. Confiscatory Price Regulation Violates The Due Process And Takings Clauses Of The Fifth Amendment ..................................................................... 15

B. The Board Action Raises A Serious Risk Of Unconstitutional Confiscation Of Property........................................................................................................ 16

III. IF THE FINAL RULE PRECLUDES ISSUERS FROM RECOVERING THEIR COSTS PLUS AREASONABLE RATE OF RETURN, THEN THE COURT SHOULD PRELIMINARILY ENJOIN THE DURBIN AMENDMENT............................................................................................. 28

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A. The Board’s Narrow Interpretation Of The Durbin Amendment Is Contrary To The Public Interest ....................................................................................... 28

B. Maintaining The Status Quo Will Not Harm Merchants Or Consumers ............. 31

C. If The Board Insists Upon Its Current Interpretation Of The Durbin Amendment, Then This Court Should Enter A Preliminary Injunction............... 33

CONCLUSION ........................................................................................................................ 33

APPENDIX..............................................................................................................................A1

CERTIFICATE OF COMPLIANCE

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TABLE OF AUTHORITIES

CASES

Bell Atlantic Telegraph Cos. v. FCC, 24 F.3d 1441 (D.C. Cir. 1994) ........................................ 13

Board of Regents v. Roth, 408 U.S. 564 (1972)......................................................................... 18

Brooks-Scanlon Co. v. Railroad Commission, 251 U.S. 396 (1920) .......................................... 24

Calfarm Insurance Co. v. Deukmejian, 48 Cal. 3d 805 (1989) ...................................7, 15, 16, 19

College Savings Bank v. Florida Prepaid Postsecondary Education Expense Board, 527 U.S. 666 (1999)...................................................................................................... 17

Davis v. Elmira Savings Bank, 161 U.S. 275 (1896) ................................................................. 20

Duquesne Light Co. v. Barasch, 488 U.S. 299 (1989) .........................................................passim

Edward J. DeBartolo Corp. v. Florida Gulf Coast Building & Construction Trades Council, 485 U.S. 568 (1988)........................................................................................ 13

FPC v. Hope Natural Gas Co., 320 U.S. 591 (1944)...........................................................passim

FPC v. Natural Gas Pipeline Co. of America, 315 U.S. 575 (1942) .......................................... 12

Farmers’ & Merchants’ Bank v. Federal Reserve Bank of Richmond, 262 U.S. 649 (1923) ........................................................................................................................... 19

Franklin National Bank of Franklin Square v. New York, 347 U.S. 373 (1954)......................... 21

Fort Smith Light & Traction Co. v. Bourland, 267 U.S. 330 (1925) ......................................... 24

Guaranty National Insurance Co. v. Gates, 916 F.2d 508 (9th Cir. 1990) ..................7, 15, 16, 19

Hawkeye Commodity Promotions, Inc. v. Vilsack, 486 F.3d 430 (8th Cir. 2007) ....................... 17

Hill v. Group Three Housing Development Corp., 799 F.2d 385 (8th Cir. 1986) ....................... 18

In re Permian Basin Area Rate Cases, 390 U.S. 747 (1968).................................................12, 14

Kimball Laundry Co. v. United States, 338 U.S. 1 (1949) ......................................................... 17

Michigan Bell Telegraph Co. v. Engler, 257 F.3d 587 (6th Cir. 2001) .......................7, 15, 16, 24

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Minnesota Association of Health Care Facilities, Inc. v. Minnesota Department of Public Welfare, 742 F.2d 442 (8th Cir. 1984)......................................................................20, 27

Nebbia v. New York, 291 U.S. 502 (1934)................................................................................. 27

Pennell v. City of San Jose, 485 U.S. 1 (1988) .......................................................................... 27

Reed v. Village of Shorewood, 704 F.2d 943 (7th Cir. 1983) ..................................................... 18

Republic of Argentina v. Weltover, Inc., 504 U.S. 607 (1992) ................................................... 12

Texas State Bank v. United States, 423 F.3d 1370 (Fed. Cir. 2005) ........................................... 18

Tiffany v. National Bank of Missouri, 85 U.S. (18 Wall.) 409 (1873) ........................................ 20

United States v. Philadelphia National Bank, 374 U.S. 321 (1963) ......................................21, 22

University of Great Falls v. NLRB, 278 F.3d 1335 (D.C. Cir. 2002).......................................... 13

Zadvydas v. Davis, 533 U.S. 678 (2001) ................................................................................... 13

STATUTES

5 U.S.C. § 552(a)(4)(A)(i) ........................................................................................................ 11

5 U.S.C. § 552(a)(4)(A)(ii) ....................................................................................................... 11

7 U.S.C. § 940f(c)(2) ............................................................................................................... 11

12 U.S.C. § 26.......................................................................................................................... 21

12 U.S.C. § 27.......................................................................................................................... 21

12 U.S.C. § 84 ......................................................................................................................... 19

12 U.S.C. § 85 ......................................................................................................................... 19

12 U.S.C. § 181 ....................................................................................................................... 21

12 U.S.C. § 248(i)-(j) ............................................................................................................... 21

12 U.S.C. § 248(s)(1) ............................................................................................................... 11

12 U.S.C. § 342 ....................................................................................................................... 19

12 U.S.C. § 343 ....................................................................................................................... 21

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12 U.S.C. §§ 1811-1835a.......................................................................................................... 21

12 U.S.C. § 1816 ...................................................................................................................... 22

12 U.S.C. § 1842(c)(2) ............................................................................................................. 22

15 U.S.C. § 1693(a).................................................................................................................. 22

15 U.S.C. § 1693o-2(a)(2) ................................................................................................. passim

15 U.S.C. § 1693o-2(a)(3)(A) .............................................................................................passim

15 U.S.C. § 1693o-2(a)(3)(B) ................................................................................................... 10

15 U.S.C. § 1693o-2(a)(4)(B)(i)............................................................................................ 3, 10

15 U.S.C. § 1693o-2(a)(4)(B)(ii) ............................................................................................ 3, 9

15 U.S.C. § 1693o-2(a)(6)(A) ..................................................................................................... 3

15 U.S.C. § 1693o-2(a)(9). ................................................................................................... 3, 28

15 U.S.C. § 1693o-2(c)(8). ....................................................................................................... 27

42 U.S.C. § 10222(a)(3) ........................................................................................................... 11

Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203,124 Stat. 1375 (2010)...................................................................................................... 2

124 Stat. 1527 (2010).................................................................................................... 11

Pub. L. No. 73-467, 48 Stat. 1216 (1934).................................................................................. 22

Pub. L. No. 105-219, 112 Stat. 913 (1998)................................................................................ 21

Mich. Comp. Laws § 484.2102(y) (2001) ................................................................................. 15

REGULATIONS

12 C.F.R. § 5.48 ....................................................................................................................... 21

12 C.F.R. § 5.53 ....................................................................................................................... 21

12 C.F.R. § 345.21 ................................................................................................................... 22

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12 C.F.R. § 345.25 ................................................................................................................... 22

Debit Card Interchange Fees and Routing, 75 Fed. Reg. 81,722(Dec. 28, 2010) .......................................................................................................passim

OTHER AUTHORITIES

Bank and Credit Union Trade Associations Comment Letter (Feb. 22, 2011), http://www.electronicpaymentscoalition.org/interchange/fedrule/letters.aspx.................. 5

David S. Evans & Richard Schmalensee, Markets with Two-Sided Platforms, 1 Issues inCompetition Law and Policy 667 (ABA Section of Antitrust Law 2008)....................... 25

David Evans & Richard Schmalensee, The Economics of Interchange Fees and Their Regulation, MIT Sloan Working Paper No. 4548-05 (May 2005).................................. 32

David Seltzer testimony, Vice President and Treasurer of 7-Eleven Inc., before the Financial Institutions and Consumer Credit Subcommittee of the Financial Institutions Committee of the United States House of Representatives (Feb. 17, 2011), http://financialservices.house.gov/media/pdf/021711seltzer.pdf ......................... 23

Federal Reserve System, The 2010 Federal Reserve Payments Study: Noncash Payment Trends in the United States (Dec. 8, 2010), http://www.frbservices.org/files/communications/pdf/press/2010_payments_study.pdf ........................................................................................................................23, 31

Federal Deposit Insurance Corporation, FDIC National Survey of Unbanked and Underbanked Households (Dec. 2009), http://fdic.gov/householdsurvey/full_report.pdf............................................................. 29

GAO, Rising Interchange Fees Have Increased Costs for Merchants, but Options for Reducing Fees Pose Challenges, GAO-10-45 (Nov. 2009)............................................ 32

Letter from Acting Comptroller of the Currency, John Walsh, to Jennifer Johnson, Board of Governors of the Federal Reserve System (Mar. 4, 2011), http://www.aba.com/aba/documents/news/OCCletter3711.pdf ................................. 9, 17

Robin A. Prager et al., Interchange Fees and Payment Card Networks: Economics, Industry Developments, and Policy Issues (2009),http://www.federalreserve.gov/pubs/feds/2009/200923/200923pap.pdf (2009)...25, 28, 32

Jean-Charles Rochet & Jean Tirole, Two-Sided Markets: A Progress Report, 37 RAND J. of Econ. 645 (2006) ...................................................................................................... 25

Senate Banking Committee Hearing Transcript, LexisNexis, Feb. 17, 2011................................ 3

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Stan Sienkiewicz, The Evolution of EFT Networks from ATMs to New On-Line Debit Payment Products (April 2002), http://www.philadelphiafed.org/payment-cards-center/publications/discussion-papers/2002/EFTNetworks_042002.pdf......................... 23

Richard R. Sullivan, Can Smart Cards Reduce Payments Fraud and Identity Theft(2008), http://www.kansascityfed/org/Publicat/Econrev/PDF/3q08Sullivan.pdf ....... 31-32

Survey: Fed Debit Card Rule Will Harm Community Bank Customers, ICBA News (Feb. 14, 2011) ............................................................................................................. 30

The 2011 Statistical Abstract, U.S. Census Bureau, http://www.census.gov/ compendia/statab/cats/banking_finance_insurance/payment_systems_consumer_credit_mortgage_debt.html ............................................................................................. 23

Webster’s Third New International Dictionary (2002) .........................................................10, 11

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INTEREST OF AMICI CURIAE

Amici, who are listed in Appendix A to this brief, constitute every major nationwide bank

and credit union trade association in the United States. With virtually unprecedented unanimity,

amici stand in opposition to the Federal Reserve Board’s imposition of unreasonable and drastic

price controls on debit-card interchange fees. Over the past several decades, the financial

institutions represented by amici have collectively invested billions of dollars to help develop an

efficient, convenient, and secure debit-card payments system. Today, debit cards have become

the primary form of non-cash payment for millions of Americans and thousands of merchants,

who conducted almost 38 billion transactions worth more than $1.45 trillion in 2009 alone. The

innovation of electronic debit-card payment has been a tremendous economic boon for all—

consumers, merchants, the financial-services industry, and the country as a whole.

The Board’s erroneous interpretation of the Durbin Amendment threatens to wreak havoc

on this vital component of our nation’s economy and to cause substantial structural disruptions to

the financial-services industry. The Board has proposed capping interchange fees at 12 cents per

transaction—an amount that, as the Board acknowledges, is far below issuers’ actual costs and

does not allow for a reasonable return on issuers’ substantial investments. If the Board’s action

were permitted to take effect, it would immediately reduce interchange fee revenues by as much

as 80 percent, resulting in a staggering drop of approximately $12 billion in revenues per year

for banks and credit unions. This unprecedented economic intervention would also deprive

millions of Americans (particularly low-income Americans) of access to the inexpensive,

reliable, convenient, secure, and efficient method of debit-card payment. As the Government

acknowledges, however, nothing in the Durbin Amendment requires the Board to establish price

caps.

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Amici appear before this Court in support of Plaintiff TCF National Bank (“TCF”) to

explain the detrimental effect the Board’s action would have on consumers, financial institutions,

and the stability of the electronic payments structure that undergirds literally trillions of dollars

of our economy, as well as the serious constitutional issues that the Board’s action raises. The

Board’s 12-cent cap should not be allowed to take effect.

BACKGROUND

I. THE DURBIN AMENDMENT

The Durbin Amendment was enacted as part of the Consumer Financial Protection Act of

2010, which in turn is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act,

Pub. L. No. 111-203, 124 Stat. 1375, 2068-2074 (2010) (“Dodd-Frank Act”). There were no

hearings on this amendment, no opportunity for meaningful input from the bank regulatory

agencies, little to no consideration by Congress of the legislation’s ramifications, and no stand-

alone vote on the legislation in the House of Representatives, the amendment having been

hurriedly enacted into law shortly after it was introduced on the Senate floor.

The Durbin Amendment requires that a debit-card interchange fee be “reasonable and

proportional” to the issuer’s costs. The statute places this requirement in a new § 920(a)(2) of

the pre-existing Electronic Fund Transfer Act (“EFTA”), 15 U.S.C. § 1693o-2(a)(2):

(2) Reasonable Interchange Transaction Fees.—The amount of any interchange transaction fee that an issuer may receive or charge with respect to an electronic debit transaction shall be reasonable and proportional to the cost incurred by the issuer with respect to the transaction.

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This requirement applies to an “issuer”—i.e., entities that issue debit cards—but theoretically

exempts “any issuer that, together with its affiliates, has assets of less than $10,000,000,000.”

Id. § 1693o-2(a)(6)(A).1

The Durbin Amendment directs the Federal Reserve Board (“the Board”) to promulgate

regulations establishing “standards for assessing whether the amount of any interchange

transaction fee” meets the requirement set forth in § 1693o-2(a)(2)—i.e., whether the fee is

“reasonable and proportional to the cost incurred by the issuer with respect to the transaction.”

15 U.S.C. § 1693o-2(a)(3)(A). Congress instructed the Board, in undertaking the development

of these standards, to “consider” certain matters, such as “the incremental cost incurred by an

issuer for the role of the issuer in the authorization, clearance, or settlement of a particular

electronic debit transaction.” Id. § 1693o-2(a)(4)(B)(i). Congress also instructed the Board not

to “consider” “other costs incurred by an issuer which are not specific to a particular electronic

debit transaction.” Id. § 1693o-2(a)(4)(B)(ii). As the Government acknowledges (Br. 2, 28),

these two instructions, read together, authorize the Board to consider costs that issuers incur

beyond simply “authorization, clearance, [and] settlement” costs. Indeed, Congress’s ultimate

direction to the Board, importantly, is to establish standards for assessing whether an interchange

fee is “reasonable and proportional to,” broadly, “the cost incurred by the issuer with respect to

the transaction.” 15 U.S.C. § 1693o-2(a)(3)(A).

The Durbin Amendment provides for the Board to issue a final rule by April 21, 2011.

15 U.S.C. § 1693o-2(a)(3)(A). The statute takes effect on July 21, 2011. Id. § 1693o-2(a)(9).

1 Notwithstanding this exemption, as a practical matter the Durbin Amendment puts at risk the debit-card businesses of more than 15,000 financial institutions of all sizes. See, e.g., Senate Banking Committee Hearing Transcript, LexisNexis, Feb. 17, 2011, at 14 (statement of Federal Reserve Board Chairman Bernanke); id. at 27 (statement of FDIC Chairwoman Bair).

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II. THE BOARD’S ACTION

On December 16, 2010, the Board announced its initial action under the Durbin

Amendment, which subsequently was published in a notice of proposed rulemaking in the

Federal Register. See Debit Card Interchange Fees and Routing, 75 Fed. Reg. 81,722 (Dec. 28,

2010) (“Board Action”). The Board offered two alternative debit interchange fee restrictions.

Rather than setting forth factors for “assessing” a fee’s compliance with the statutory “reasonable

and proportional” mandate, as the statute requires (15 U.S.C. § 1693o-2(a)(3)(A)), both

alternatives establish hard price caps. The Board chose to fix prices even though, as the

Government itself notes, the statute does not direct the Board to “set a specific rate for debit

interchange fees.” Br. 2; see id. at 31 & n.36 (noting that the Durbin Amendment “is in marked

contrast to the explicit ratemaking authority granted to” agencies like the FERC and the FCC).

Alternative 1 is an issuer-specific rule with both a safe harbor and cap. The rule allows

an issuer to receive a per-transaction interchange fee up to a 7-cent safe harbor. See 75 Fed. Reg.

at 81,738. If an issuer’s allowable costs per transaction exceed 7 cents, then the rule allows the

issuer the option of demonstrating its costs and receiving a higher per-transaction interchange fee

equal to such allowable costs, but not more than a cap of 12 cents. Id. at 81,737-81,738. Per-

transaction costs are determined by taking the issuer’s total “allowable” costs for the prior year

divided by the total number of debit-card transactions during that year. Id. at 81,735. Despite

the Government’s admission in its brief that the Durbin Amendment authorizes the Board to

consider a broad range of costs (Br. 2, 28), the Board narrowly limited “allowable” costs to only

those that an issuer incurs for the authorization, clearance, and settlement of debit-card

transactions. 75 Fed. Reg. at 81,734. By the Board’s own acknowledgment, its definition of

“allowable” costs excludes a substantial amount of costs that issuers incur in the provision of

debit-card services. Id. at 81,734-81,735. Moreover, even within the limited category of

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“authorization, clearance, and settlement” costs, the Board’s rule is narrowly confined to only

those costs that vary with the number of debit-card transactions, up to an issuer’s existing

capacity levels (“average variable cost”). Id. at 81,735. Again, by the Board’s own

acknowledgment, this limitation excludes many costs that issuers incur for the authorization,

clearance, and settlement of debit-card transactions. Id.

Alternative 2 is simpler, but hardly less harsh. It sets a cap on interchange fees of 12

cents per transaction. See 75 Fed. Reg. at 81,738. The cap also operates as a safe harbor. Any

issuer can charge up to the cap without demonstrating its actual allowable costs per transaction.

Id.

III. THE TRADE ASSOCIATIONS’ COMMENT LETTER

The Board requested comment on its action by February 22, 2011. See 75 Fed. Reg. at

81,722. On that date, speaking with a single voice, every major nationwide bank and credit

union trade association—amici here—submitted a 65-page comment letter to the Board to

express their strong opposition to the Board’s deeply flawed approach to the Durbin

Amendment.2 The letter explains that the Board’s unprecedented price controls are plainly

beyond any permissible interpretation of the Durbin Amendment. As stated in greater detail in

the letter, the statute requires the Board to establish standards for assessing whether an

interchange fee is reasonable and proportional to a debit-card issuer’s costs, and therefore

requires the Board to allow issuers to receive interchange fees sufficient to cover those costs plus

a reasonable rate of return. The comment letter also demonstrates that the Board Action would

have profound adverse consequences for consumers (particularly low-income Americans),

financial institutions (particularly the nation’s smaller banks and credit unions), the domestic

2 See Bank and Credit Union Trade Associations’ Comment Letter (Feb. 22, 2011), http://www.electronicpaymentscoalition.org/interchange/fedrule/letters.aspx.

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payments system, and the economy as a whole. Dozens of interested bank and credit union

associations or consortiums and hundreds of individual banks and credit unions also filed

separate comment letters with the Board, opposing the Board Action on the same or substantially

similar grounds.

SUMMARY OF ARGUMENT

Amici strongly agree with TCF that the Durbin Amendment, as currently interpreted in

the Board Action, threatens severe adverse consequences for consumers, the financial industry,

and the economy. Accordingly, amici submit this brief to advance three important points.

First, amici submit that the Durbin Amendment requires the Board to promulgate

standards that allow a debit-card issuer to receive an interchange fee sufficient to cover the costs

of providing debit-card services plus a reasonable rate of return. This is clear from the statutory

text, which places only one legal restraint on the interchange fees received by debit-card issuers:

the fees “shall be reasonable and proportional to the cost incurred by the issuer with respect to

the transaction.” 15 U.S.C. § 1693o-2(a)(2). The “reasonable and proportional” amount above

this broad cost baseline includes a reasonable return on invested capital, as has long been

guaranteed by similar federal statutes and the Constitution itself. The statutory direction to the

Board is to issue standards for assessing the compliance of interchange fees with this “reasonable

and proportional” requirement, not to rewrite it in the form of harsh price caps set far below

costs. (Infra, Part I.)

Second, amici agree with TCF that the Board Action—which precludes issuers from

recovering their actual costs of debit-card services and from earning a reasonable return on their

investments—raises serious constitutional concerns under the Due Process and Takings Clauses

of the Fifth Amendment to the Constitution. As TCF demonstrates, the courts have repeatedly

found that government price controls that preclude the recovery of costs plus a reasonable return

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are unconstitutionally confiscatory. See, e.g., Michigan Bell Tel. Co. v. Engler, 257 F.3d 587

(6th Cir. 2001); Guaranty Nat’l Ins. Co. v. Gates, 916 F.2d 508 (9th Cir. 1990); Calfarm Ins. Co.

v. Deukmejian, 48 Cal. 3d 805 (1989). The Board’s two alternative rules cap interchange fees at

an amount that the Board concedes is far below issuers’ total costs of their debit-card lines of

business, and do not permit a reasonable return on issuers’ investments in the debit-card

payments system. Indeed, using the Board’s own estimates, the Board Action would reduce

issuers’ interchange fee revenues by the staggering total of approximately $12 billion annually.

The Government’s argument that this devastating price control implicates no cognizable

property interests of issuers in their debit-card businesses is startling, and fortunately wrong

under settled precedent of both the Supreme Court and the Eighth Circuit. The Government’s

further suggestion that these same price-control cases protect only public utilities against

confiscatory price controls is also wrong. Finally, the possibility that over time some issuers

might find some way to recoup some lost interchange fee revenue by increasing charges to bank

customers does not free the Board from constitutional constraints. Simply put, the Board’s

interpretation of the Durbin Amendment raises a serious risk that the goodwill built up from

issuers’ substantial investments over time in their debit-card lines of business will be eviscerated.

(Infra, Part II.)

Third, amici agree with TCF that, as embodied in the Board Action, implementation of

the Durbin Amendment would cause irreparable harm to issuers and consumers, and that a

preliminary injunction would be in the public interest. TCF has asked this Court to preliminarily

enjoin the enforcement of the Durbin Amendment on the ground that TCF is likely to prevail on

the merits of its constitutional challenge to the statute. Although amici believe that the statute

should be read in a way that is constitutionally permissible, the Board Action would implement

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the Durbin Amendment in a manner that creates, rather than avoids, the same serious

constitutional concerns that TCF has identified. The statute provides for the Board to issue a

final rule by April 21, 2011, just over two weeks after the April 4, 2011 hearing set in this matter

on TCF’s motion for preliminary injunction. Amici are hopeful that the Board will issue a final

rule that abides by its proper statutory mandate and thereby avoids constitutional concerns.

Nevertheless, should the final rule, like the Board Action, preclude issuers from recovering their

actual costs plus a reasonable rate of return, then this Court should stay the Durbin Amendment’s

effective date pending the conclusion of this litigation, so that irreparable harm to consumers,

financial institutions, and the overall public interest can be averted while the serious

constitutional claims in this case are litigated. (Infra, Part III.)

ARGUMENT

I. THE DURBIN AMENDMENT DOES NOT AUTHORIZE THE BOARD TO PRECLUDE ISSUERS FROM RECEIVING AN INTERCHANGE FEE SUFFICIENT TO COVER THE ISSUER’S COSTS PLUS A REASONABLE RATE OF RETURN

The Durbin Amendment directs the Board to establish “standards for assessing” whether

an interchange fee is “reasonable and proportional” to an issuer’s costs with respect to a debit-

card transaction. 15 U.S.C. § 1693o-2(a)(3)(A). The statute does not authorize the Board to

issue standards that would preclude an issuer from receiving an interchange fee that is sufficient

to cover its debit-card costs plus a reasonable rate of return, much less to mandate a fee amount

that is far below an issuer’s actual costs. The Board Action contains only two options for

implementation of the Durbin Amendment’s debit-card fee provisions. Neither option complies

with the Board’s statutory mandate; both raise serious constitutional concerns.

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A. The Statutory Text Requires The Board To Establish Standards That Allow For Interchange Fees Covering Both An Issuer’s Costs And A Reasonable Rate Of Return

The Board Action imposes a specific fixed amount for interchange fees of at most 12

cents per debit-card transaction. The Government rightly acknowledges that this action is in

tension with the Durbin Amendment, which, “in marked contrast to explicit ratemaking

authority” granted to other federal agencies (Br. 31), “does not mandate a fixed rate” (Br. 31

n.36). Indeed, the Acting Comptroller of the Currency, a defendant here, has made the same

point, and has urged the Board “to reconsider its rate-cap based approach” and allow issuers to

recover costs “that are recognized and indisputably part of conducting a debit-card business.”3

The Comptroller’s position is well-grounded in the statute. The Durbin Amendment imposes a

singular requirement on debit-card issuers regarding the “amount of any interchange transaction

fee” that the issuer may receive. The statute further dictates that the amount of the fee “shall be

reasonable and proportional to the cost incurred by the issuer with respect to the transaction.” 15

U.S.C. § 1693o-2(a)(2). The Durbin Amendment then charges the Board with establishing

“standards for assessing” whether a fee satisfies this requirement. Id. § 1693o-2(a)(3)(A).

The cost baseline set forth in these subsections (a)(2) and (a)(3)(A) is broad and

inclusive, as the Government concedes (Br. 28 & n.33). It encompasses any “cost incurred by

the issuer with respect to the transaction.” The only costs that the statute prohibits the Board

from “consider[ing]” are certain “other costs incurred by an issuer which are not specific to a

particular electronic debit transaction,” 15 U.S.C. § 1693o-2(a)(4)(B)(ii), a phrase that reiterates

the requirement already set forth in subsections (a)(2) and (a)(3)(A) that the cost be “with respect

3 Letter from Acting Comptroller of the Currency, John Walsh, to Jennifer Johnson, Board of Governors of the Federal Reserve System, at 1, 3 (Mar. 4, 2011) (“OCC Ltr.”), http://www.federalreserve.gov/SECRS/2011/March/20110308/R-1404/R-1404_030711_69110_ 478769283129_1.pdf.

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to the transaction.” With only one exception, Congress chose not to describe the types of costs

the Board might identify, instead providing for the Board to study such costs through the

collection of information from issuers and payment card networks. Id. § 1693o-2(a)(3)(B). The

one exception is that the Durbin Amendment requires the Board to “consider” “the incremental

cost incurred by an issuer for the role of the issuer in the authorization, clearance, or settlement

of a particular transaction.” Id. § 1693o-2(a)(4)(B)(i). If the Board determines that issuers do

incur costs “with respect to” a debit-card transaction beyond simply “incremental . . .

authorization, clearance or settlement” costs—as the Board already has done in its Notice of

Proposed Rulemaking—then the Durbin Amendment’s text itself requires that those costs be

included in the baseline by which reasonableness and proportionality are measured. Id.

§§ 1693o-2(a)(2), (a)(3)(A).

The statute clearly provides that an interchange fee must be “reasonable and proportional

to the cost incurred by the issuer with respect to the transaction.” 15 U.S.C. § 1693o-2(a)(2)

(emphasis added). Congress did not direct or authorize the Board to vary this statutory

requirement by regulation, but rather only directed the Board to develop standards for assessing

whether a fee satisfies this requirement. See id. § 1693o-2(a)(3)(A).

The phrase “reasonable and proportional” requires allowance for a fee that covers all of

the costs described in subsections (a)(2) and (a)(3)(A), plus a reasonable rate of return above

those costs. This is clear both from the ordinary meaning of the terms Congress employed and

the well-understood meaning of similar textual formulations used in federal ratemaking statutes.

Ordinary meanings of “reasonable” include “moderate” or “that allows a fair profit.” Webster’s

Third New International Dictionary 1892 (2002). An interchange fee would not be reasonable if

the Government compelled it to be set at a level that precludes a reasonable profit margin or,

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worse, precludes the recovery of even all the costs of providing the relevant service. Congress’s

pairing of the term “reasonable” with the words “and proportional to” confirms this reading of

the statute. The term “proportional” in this context means “corresponding in size, degree, or

intensity” to, or “regulated or determined in size or degree with reference to,” the costs of the

issuer. Id. at 1819. The statute thus requires that the amount of an interchange fee allow for a

fair profit that corresponds by degree with, or that is determined in reference to, the issuer’s

costs.

Had Congress intended to require the Board to restrict interchange fees to cost alone, it

could and would have done so explicitly and directly. Yet Congress did not use terms like

“limited to” or “equal to” that it typically has employed to strictly confine the permissible level

of fees, rates, or prices regulated by statute. For example, elsewhere in the Dodd-Frank Act,

Congress directed the Board to collect from certain companies “a total amount of assessments,

fees, or other charges . . . that is equal to the total expenses the Board estimates are necessary or

appropriate to carry out the supervisory and regulatory responsibilities of the Board with respect

to such companies.” 12 U.S.C. § 248(s)(1), 124 Stat. at 1527 (emphasis added); see also

5 U.S.C. §§ 552(a)(4)(A)(i) & (ii) (directing agencies to “promulgate regulations . . . specifying

the schedule of [certain] fees,” which, in specified circumstances, “shall be limited to reasonable

standard charges for document search, duplication, and review” (emphasis added)).

Likewise, in more traditional ratemaking contexts, Congress has been direct and explicit

when it instructs an agency to set a fee, rate, or price equivalent to or limited to only certain

explicit amounts. See, e.g., 7 U.S.C. § 940f(c)(2) (“The amount of the fee paid shall be equal to

the modification cost . . .” (emphasis added)); 42 U.S.C. § 10222(a)(3) (prescribing fee to be “in

an amount equivalent to an average charge of 1.0 mil per kilowatt-hour for electricity generated

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by such spent nuclear fuel, or such solidified high-level waste derived therefrom” (emphasis

added)). These examples, in which Congress imposed specific limitations on fee, rate, or price

determinations, contrast sharply with the “reasonable and proportional” term that the Durbin

Amendment uses.

Interpreting the “reasonable and proportional” standard to require inclusion of both costs

and a reasonable rate of return also comports with the construction of similar statutory schemes

authorizing rates that are “reasonable” and “just” or “fair.” There is a presumption “that when a

statute uses a term of art, Congress intended it to have its established meaning.” Republic of

Argentina v. Weltover, Inc., 504 U.S. 607, 613 (1992) (citation, brackets, and internal quotation

marks omitted). Congress has a long history of using the term “reasonable,” frequently paired

with “just” or “fair,” in ratemaking statutes. There is a similar history of courts construing the

terms used in that context to mean that the rate in question must allow for a reasonable rate of

return above costs. See, e.g., In re Permian Basin Area Rate Cases, 390 U.S. 747, 770 (1968);

FPC v. Hope Natural Gas Co., 320 U.S. 591, 603 (1944); FPC v. Natural Gas Pipeline Co. of

Am., 315 U.S. 575, 585-586 (1942).

Accordingly, if the Durbin Amendment’s command were not already clear from the

ordinary meaning of its text, this history of the use of similar phrases in federal price regulation

confirms that the statute requires the Board to allow interchange fees that cover an issuer’s costs

plus a reasonable rate of return.

B. Interpreting The Durbin Amendment To Allow A Reasonable Rate Of Return Is Further Necessary To Avoid Serious Constitutional Concerns

An additional reason compels reading the Durbin Amendment this way. As discussed in

Part II, a contrary reading under which issuers would be precluded from receiving interchange

fees sufficient to cover their costs and a reasonable rate of return—e.g., the Board Action—

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would raise serious constitutional concerns. Courts have an obligation to interpret an ambiguous

statute in a way that avoids serious constitutional issues. See, e.g., Zadvydas v. Davis, 533 U.S.

678, 689 (2001) (“It is a cardinal principle of statutory interpretation . . . that when an Act of

Congress raises a serious doubt as to its constitutionality, this Court will first ascertain whether a

construction of the statute is fairly possible by which the question may be avoided.” (internal

quotation marks omitted)). This obligation is in no way lessened by the fact that it is the Board

here who is directed in the first instance to implement the statute. Even if the Court were to find

the meaning of the Durbin Amendment’s text to be ambiguous—amici believe it is clear (supra,

Part I.A)—the Board’s interpretation would not be entitled to Chevron deference if it were to

raise serious constitutional concerns. See Edward J. DeBartolo Corp. v. Florida Gulf Coast

Bldg. & Constr. Trades Council, 485 U.S. 568, 574-577 (1988) (declining to defer to agency

interpretation of ambiguous statute which raised “serious questions of the validity of [the statute]

under the First Amendment”); University of Great Falls v. NLRB, 278 F.3d 1335, 1340-1341

(D.C. Cir. 2002) (“[T]he constitutional avoidance canon of statutory interpretation trumps

Chevron deference.”); Bell Atl. Tel. Cos. v. FCC, 24 F.3d 1441, 1445-1446 (D.C. Cir. 1994)

(rejecting Chevron deference for agency’s interpretation of § 201 of the Federal Communications

Act, which raised Takings Clause concern).

C. The Board’s Action Contravenes The Statute Because It Caps Interchange Fees Below An Amount Sufficient To Cover An Issuer’s Costs Plus A Reasonable Rate Of Return

The Board’s Action is not a permissible implementation of the Durbin Amendment’s

text. To the contrary, the Board’s harsh price caps contravene the statute.

Under the Board Action, banks can receive interchange fees of, at most, 12 cents per

transaction. As the Board acknowledges in its Notice of Proposed Rulemaking, the allowable

costs under the Board Action account for only a small fraction of issuers’ total costs for debit-

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card services: allowable costs are limited to “authorization, clearance, and settlement” costs and,

even within that narrow subset of costs, are further limited to costs that vary with the number of

debit-card transactions, up to an issuer’s existing capacity levels. See 75 Fed. Reg. at 81,735-

81,736. The Board thus excluded from allowable costs, for example, many costs that are specific

to particular debit transactions but which are not for authorization, clearance, or settlement. The

Board further excluded costs that may be common to many debit-card transactions but that, in

the Board’s view, do not vary with the number of transactions up to an issuer’s existing capacity

levels. Id. at 81,736. Finally, the Board also excluded costs relating to fraud losses or fraud

prevention costs. Id. at 81,735. This exclusion of substantial costs from the Board-authorized

fee amount is far from the “reasonable and proportional” relationship to costs required by the

Durbin Amendment. To the contrary, the Board Action caps interchange fees far below issuers’

costs.

For all of these reasons, the Board Action departs sharply from the Board’s statutory

mandate. The Court should not treat the Board Action as either a necessary or appropriate

implementation of the Durbin Amendment.

II. THE BOARD’S INTERPRETATION RAISES SERIOUS CONSTITUTIONAL CONCERNS UNDER THE DUE PROCESS AND TAKINGS CLAUSES

It is “plain that the power to regulate is not a power to destroy,” In re Permian Basin

Area Rates Cases, 390 U.S. at 769 (internal quotation marks omitted), yet that is precisely what

the Board Action threatens to do to the debit-card business. By drastically lowering debit-card

interchange fees, the Board Action not only eliminates any return on debit-card products and

services; it also caps interchange fees at an amount that is far below an issuer’s per-transaction

costs. The confiscatory effect raises serious constitutional concerns under the Due Process and

Takings Clauses of the Fifth Amendment to the Constitution.

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A. Confiscatory Price Regulation Violates The Due Process And Takings Clauses Of The Fifth Amendment

The Supreme Court has held that the Due Process Clause and the Takings Clause of the

Fifth Amendment forbid the Government from dictating a price for a product or service at an

amount that has a “confiscatory” effect, meaning a price that is so low as to be “inadequate to

compensate current equity holders for the risk associated with their investments.” Duquesne

Light Co. v. Barasch, 488 U.S. 299, 307, 312 (1989). Indeed, the Court has long declared that

where the Government regulates prices, it must “enable [a] company to operate successfully, to

maintain its financial integrity, to attract capital, and to compensate its investors for the risk

assumed.” Hope Natural Gas, 320 U.S. at 605. Whether a price regulation satisfies those

criteria depends upon the “net effect” of the regulation. Duquesne Light, 488 U.S. at 314.

Pursuant to this precedent, courts around the country have held—as to both public

utilities and other private companies—that price-control regimes are facially unconstitutional

where their net effect is to preclude a regulated company from recovering its costs and a

reasonable return. See, e.g., Michigan Bell Tel. Co. v. Engler, 257 F.3d 587 (6th Cir. 2001);

Guaranty Nat’l Ins. Co. v. Gates, 916 F.2d 508 (9th Cir. 1990); Calfarm Ins. Co. v. Deukmejian,

48 Cal. 3d 805 (1989). For example, in Michigan Bell Telephone, the Sixth Circuit held that a

Michigan statute abolishing a fee charged to consumers by two telephone companies and

freezing the rates charged by those companies was facially unconstitutional under the Fifth

Amendment. Michigan law deemed a rate inadequate only if it was less than the “‘total service

long run incremental cost’ of providing the service.” 257 F.3d at 595 (quoting Mich. Comp.

Laws § 484.2102(y) (2001)). Because that formula limited the companies to recovering only

their costs, and disallowed a reasonable return, the court held that the law “clearly” did not

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guarantee the “fair and reasonable rate of return on investment” required by the Constitution. Id.

at 595-596.

In Guaranty National, the Ninth Circuit held that a statute reducing auto-insurance rates

by 15 percent for a single year—about one-fifth of the cost reduction the Board Action imposes

going forward—on its face deprived insurance companies of due process. See 916 F.2d at 509.

The relevant law permitted an insurer only to break even on its costs, and therefore failed to

“guarantee the constitutionally required ‘fair and reasonable return.’” Id. at 515 (quoting Hope

Natural Gas, 320 U.S. at 603). Finally, in Calfarm, the California Supreme Court held that an

initiative that similarly reduced auto-insurance rates by 20 percent for one year facially deprived

the regulated companies of due process. See 48 Cal. 3d at 813-815, 820-822.

B. The Board Action Raises A Serious Risk Of Unconstitutional Confiscation Of Property

The Board Action implements the Durbin Amendment in a manner that raises the same

serious constitutional concerns as the regulatory schemes invalidated in Michigan Bell

Telephone, Guaranty National, and Calfarm. The Board Action caps debit-card interchange fees

at 12 cents per transaction, and may force interchange fees down to as low as 7 cents. That is a

drastic cut from the current average of approximately 44 cents per transaction. The Board

Action would, in the aggregate, cost issuers approximately $12 billion in interchange revenues

yearly, a reduction of around 80%. See 75 Fed. Reg. at 81,735-81,736. The 12-cent cap is far

below an issuer’s actual costs and includes no allowance for a reasonable rate of return on an

issuer’s capital investments. See supra Part I.C. On its face, then, the Board’s interpretation

“clearly” does not guarantee the “fair and reasonable rate of return on investment” required by

the Constitution. Michigan Bell Tel., 257 F.3d at 595-596; see Guaranty Nat’l, 916 F.2d at 515

(similar). Indeed, as the Acting Comptroller of the Currency has noted since the Government

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filed its brief in this case, the Board’s “unnecessarily narrow approach to recovery of costs” will

have “long-term safety and soundness consequences—for banks of all sizes—that are not

compelled by the statute.” OCC Ltr. at 1.

The Government’s arguments that the Durbin Amendment raises no serious constitutional

issues are wholly unavailing.

1. The Government first contends (Br. 13-19) that no constitutional issue is

presented because the Board’s price controls do not implicate any constitutionally cognizable

property interest. In other words, the Government claims it can confiscate by regulation 80% of

a private company’s revenue stream from one of its lines of business, amounting to billions of

dollars every year, free of any constitutional inquiry whatsoever. That breathtaking assertion of

governmental power, free from even the most minimal constitutional restraint, finds no support

in any of the cases cited by the Government, nor in any principle. Indeed, the Government’s

primary case, Hawkeye Commodity Promotions, Inc. v. Vilsack, 486 F.3d 430 (8th Cir. 2007),

plainly demonstrates that the assertion is wrong. There, Hawkeye argued that a prohibition on

the private operation of certain video-lottery machines was an unconstitutional taking and a

deprivation of its property rights. Although the Eighth Circuit concluded that certain of

Hawkeye’s alleged property interests were not constitutionally protected, id. at 440, the Eighth

Circuit’s holding was that Hawkeye did have a cognizable property interest in the “business

itself,” id. at 439, 440, which encompassed “intangible” interests like “business . . . goodwill”

and “earning power,” id. at 439 (quoting Kimball Laundry Co. v. United States, 338 U.S. 1, 5, 11

(1949)). See also College Sav. Bank v. Florida Prepaid Postsecondary Educ. Expense Bd.,

527 U.S. 666, 675 (1999) (“The assets of a business (including its goodwill) unquestionably are

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property, and any state taking of those assets is unquestionably a ‘deprivation’ under the

Fourteenth Amendment.”).

These property interests, long regarded by the Supreme Court as “legitimate claim[s]”

under “existing rules or understandings” of property, Board of Regents v. Roth, 408 U.S. 564,

577 (1972), are the very same interests that TCF and amici’s members have in their debit-card

lines of business, that the Board Action would confiscate through its price controls, and that the

Supreme Court’s confiscatory-rate precedent protects. TCF and amici’s members collectively

have invested billions of dollars in their electronic debit-card payments systems, and—as

Duquesne Light recognizes—they have a valid property interest in earning a reasonable return on

that capital investment. See 488 U.S. at 310, 312. None of the Government’s cases, however,

has anything to do with the price controls at issue here. Rather, those cases all concern alleged

property interests in wholly unrelated matters like the Federal Reserve’s earnings on the reserves

of its member banks, Texas State Bank v. United States, 423 F.3d 1370, 1378-1380 (Fed. Cir.

2005), access to low-income housing, Hill v. Group Three Housing Development Corp., 799

F.2d 385, 389-391 (8th Cir. 1986), and liquor licenses, Reed v. Village of Shorewood, 704 F.2d

943, 948 (7th Cir. 1983). Accordingly, none of the Government’s cases casts any doubt on the

property interest at issue here—earning a reasonable return on investments in the debit-card

business.

Indeed, no court of which we are aware—and the Government tellingly cites none—has

rejected a constitutional challenge to a price control scheme on the ground that there is no

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cognizable “property” interest at stake. That is so even for “heavily regulated” industries (Gov’t

Br. 17) like electricity, natural gas, and telecommunications, and it is no less so here.4

2. The Government further argues (Br. 19-25) that the confiscatory rate precedent

should not apply here because the reasonable rate of return guaranteed by the Constitution

assertedly is only for public utilities, and debit-card issuers are not utilities. That is wrong. Both

Guaranty National and Calfarm held that confiscatory price controls on insurance companies—

which certainly are not public utilities—were unconstitutional. Moreover, there is no principled

reason that the constitutional protection would be so limited. Indeed, under the theory of Hope

Natural Gas and Duquesne Light, the property interest affected by confiscatory-rate regulation is

not the “specific physical assets” that are devoted to public use, “but the capital prudently

devoted” to the business by its owners. Duquesne Light, 488 U.S. at 309. Private companies and

public utilities alike must earn the capital necessary to allow their businesses to operate. That

does not mean that the owners’ property interest in their invested capital is absolute; neither TCF

4 Thus, contrary to the Government’s further assertion (Br. 17-19), government regulation of interest rates and fees charged by national banks does not establish that a bank has no cognizable property interest in the revenues it can earn. Were that so, government regulation of rates and fees would have rendered the constitutional inquiry in cases like Duquesne Light and Hope Natural Gas unnecessary. The Government cites no precedent that supports its extraordinary proposition, nor could it. Certainly, Farmers’ & Merchants’ Bank v. Federal Reserve Bank of Richmond, 262 U.S. 649 (1923), is inapposite. That case, which the Government cites for its recognition on a “statutory [point]” about the Federal Reserve Act (Br. 17) regarding the clearing of checks at par, rejected a due process challenge to a state statute; but on the grounds that there was no deprivation of property—not that there was no property interest even at issue, 262 U.S. at 655-656. Nor does the existence of other regulatory provisions (Br. 17 & n.21) that do not have a confiscatory effect on banks undermine the validity of banks’ constitutional right against price controls that would have that effect. See, e.g., 12 U.S.C. § 84 (limiting aggregate amount of unsecured loans of national banks); id. § 85 (capping the above-market interest rate national banks can charge on certain loans); id. § 342 (permitting national banks to make “reasonable charges” of at most 10% per $100—and remember that interchange fees average 1.14%—for certain services). Finally, that some regulation of interchange fee amounts is conceivable (Gov’t Br. 18-19) does not imply that an issuer has no cognizable property right against confiscatory government price controls on those fees. There is a constitutional distinction between reasonable regulation and confiscatory regulation.

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nor amici’s members claim a property right to receive the precise current level of interchange

fees, nor is the claim to a constitutional right to freeze the status quo allocation of fees in

perpetuity. But TCF and amici’s members do have a property interest in their debit-card lines of

business and in a reasonable return on their invested capital, and the Government cannot take or

deprive that interest free from any constitutional limitation.5

Even if the Government could identify some principled basis on which to limit the

constitutional protection against confiscatory rate regulation to only companies expected to serve

the public, such as public utilities, banks and credit unions share so much in common with those

companies that these constitutional precedents still dictate the law for this case. Even under the

Government’s unreasonably narrow view of the Constitution (Br. 20-21, 24-25), entities other

than public utilities are constitutionally entitled to recover costs plus a reasonable rate of return if

those entities are compelled to serve the public good. Gov’t Br. 21, 24-25 (listing “element of

compulsion” and “serving the greater public good” as relevant “traits” of public utilities). Banks

and credit unions unmistakably fall into this category. National banks in particular, for example,

“were established for the purpose, in part, of providing a currency for the whole country, and in

part to create a market for the loans of the General government.” Tiffany v. National Bank of

Missouri, 85 U.S. (18 Wall.) 409, 413 (1873). Indeed, their origins are precisely as

“instrumentalities of the federal government,” Davis v. Elmira Sav. Bank, 161 U.S. 275, 283

5 The Government incorrectly relies (Br. 20-21, 24) on a pre-Duquesne Light case, Minnesota Association of Health Care Facilities, Inc. v. Minnesota Department of Public Welfare, 742 F.2d 442 (8th Cir. 1984), in arguing to the contrary. The court of appeals’ suggestion in dicta that there can be no confiscatory taking of property unless a person is legally forbidden from exiting the price-controlled business has no application here. The nursing home plaintiff in that case had contractually agreed to take taxpayer funding under Medicaid and thereby agreed to accept whatever rate conditions were imposed. Id. at 446-447. Unlike the plaintiff there, however, debit-card issuers have not voluntarily contracted with the Government to provide debit-card services to certain individuals on the condition that they accept interchange fees limits set by the Government and that are far below their actual costs of service.

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(1896), designed “to perform various functions such as providing circulating medium and

government credit, as well as financing commerce and acting as private depositaries,” Franklin

Nat’l Bank of Franklin Square v. New York, 347 U.S. 373, 375 (1954). Federal law continues to

recognize the important public purposes of national banks today. Indeed, because of the public

interest involved, the National Bank Act still permits chartering of a bank only with approval

from the Office of the Comptroller of the Currency (“OCC”), see 12 U.S.C. §§ 26, 27, and once

chartered, the bank cannot relinquish its charter without OCC oversight, see 12 U.S.C. § 181; 12

C.F.R. §§ 5.48, 5.53.

More broadly, too, the Supreme Court has long recognized that “commercial banking

[plays] a key role in the national economy.” United States v. Philadelphia Nat’l Bank, 374 U.S.

321, 326 (1963); id. (“For banks do not merely deal in but are actually a source of, money and

credit; when a bank makes a loan by crediting the borrower’s demand deposit account, it

augments the Nation’s credit supply.”). “[T]he proper discharge of these [banking] functions is

indispensable to a healthy national economy.” Id. at 326-327. The Government’s treatment of

banks confirms their indispensable public role—and, indeed, their “partly public, partly private

status” (Gov’t Br. 20 (quoting Duquesne Light, 488 U.S. at 307)). The availability of short-term

credit provided to banks by the Federal Reserve Banks under the “discount window” provisions

of the Federal Reserve Act, see 12 U.S.C. §§ 248(i)-(j), 343, and the long-standing program of

FDIC deposit insurance, see id. §§ 1811-1835a, demonstrate recognition of the need for banks to

provide financial services vital to the public interest, such as lending to promote economic

growth and job creation. Congress has likewise determined that credit unions also serve

important public purposes. See, e.g., Pub. L. No. 105-219, 112 Stat. 913 (1998) (“The Congress

finds the following: The American credit union movement began as a cooperative effort to serve

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the productive and provident credit needs of individuals of modest means . . . . Credit unions

continue to fulfill this public purpose . . . . [They] have the specified mission of meeting the

credit and savings needs of consumers, especially persons of modest means.”); Pub. L. No. 73-

467, 48 Stat. 1216 (1934) (“An Act to establish a Federal Credit Union System, to establish a

further market for securities of the United States and to make more available to people of small

means credit for provident purposes through a national system of cooperative credit, thereby

helping to stabilize the credit structure of the United States.”).

For these reasons, the Government cannot plausibly argue, as a ground for saying that the

Constitution’s prohibition on confiscatory actions has no application here, that it is indifferent to

banks’ existence. “The governmental controls of American banking are manifold.”

Philadelphia Nat’l Bank, 374 U.S. at 327. A plethora of statutory and regulatory requirements

impose on banks the very obligation “to employ their assets in the public interest” (Gov’t Br. 20)

that the Government identifies as the threshold requirement for applying the confiscatory-rate

doctrine, including provisions concerning the Community Reinvestment Act, see 12 C.F.R.

§§ 345.21, 345.25, the process for approval of bank acquisitions, 12 U.S.C. § 1842(c)(2), and the

requirements to obtain FDIC insurance, id. § 1816.

Debit cards, in particular, provide a tremendous public benefit that the Government fully

expects banks to provide. Federal law unambiguously supports the electronification of the

payments system—indeed, it is one of the very purposes of the Electronic Fund Transfer Act of

which the Durbin Amendment became a part. See, e.g., 15 U.S.C. § 1693(a) (“The Congress

finds that the use of electronic systems to transfer funds provides the potential for substantial

benefits to consumers.”). The effects on the U.S. economy would be devastating if issuers were

to respond to the Board Action by leaving the debit-card business. Customers and merchants

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alike depend heavily on debit cards as a fast, efficient, safe, and easy method of conducting

transactions. During 2009 alone, debit cards constituted 35% of all non-cash transactions,

compared to 20% for credit cards and 22% for checks.6 Indeed, debit cards have become the

primary non-cash payment methodology of choice for millions of Americans and thousands of

merchants. The importance of debit cards to the economy is illustrated by their proliferation,

growing from 60 million cards in 1983 to 491 million cards in 2008, with projections of 585

million cards in 2011. The percentage of U.S. households using debit cards likewise has

exploded, growing from 20% in 1995 to 71% by 2007. As one merchant testified before a House

subcommittee, “the credit and debit card clearing system is critical to the U.S. economy and vital

to our success as a retailer.” Testimony of David Seltzer, Vice President and Treasurer of 7-

Eleven Inc., before the Financial Institutions and Consumer Credit Subcommittee of the

Financial Institutions Committee of the United States House of Representatives (Feb. 17, 2011),

http://financialservices.house.gov/media/pdf/021711seltzer.pdf. 7 As a practical reality, banks

and credit unions cannot, consistent with their responsibilities to the public, simply abandon the

debit-card business for another, more profitable line of business.

3. It also is no answer to say, as the Government argues (Br. 22-23) and as the Board

suggests in a footnote in its Notice of Proposed Rulemaking, see 75 Fed. Reg. at 81,733 n.44,

6 See Stan Sienkiewicz, The Evolution of EFT Networks from ATMs to New On-Line Debit Payment Products, 12 (April 2002), http://www.philadelphiafed.org/payment-cards-center/publications/discussion-papers/2002/EFTNetworks_042002.pdf; The 2011 Statistical Abstract, U.S. Census Bureau, http://www.census.gov/compendia/statab/cats/banking_finance _insurance/payment_systems_consumer_credit_mortgage_debt.html; see also Federal Reserve System, The 2010 Federal Reserve Payments Study: Noncash Payment Trends in the United States 16 (Dec. 8, 2010), http://www.frbservices.org/files/communications/pdf/press/2010 _payments_study.pdf (“Debit card payments continued their double-digit growth from 2006 to 2009 and accounted for 34.8 percent of noncash payments in 2009 (2.0 percent by value).”).7 Although the Government alludes in passing to the alleged oligopoly power of Visa and MasterCard, it does so only in the most conclusory fashion. Despite years of litigation, no courthas ever found the alleged monopolies to exist with respect to debit cards.

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that the constitutional rule against confiscatory rates is inapplicable because issuers assertedly

can stay in the debit-card business and recoup their lost interchange fee revenues from their

customers. As an initial matter, government-induced losses do not become constitutionally

acceptable if a regulated entity (such as a debit-card issuer) can offset them with revenues earned

in a different line of business (such as, here, fees on checking accounts or credit card

interchange). This has been clear since at least as early as 1920. In Brooks-Scanlon Co. v.

Railroad Commission, 265 U.S. 106 (1920), the Supreme Court held that it was constitutionally

irrelevant that a company ordered to operate a specific rail line at a loss could offset that loss

with revenues earned from other aspects of its business. The Court held that the company

“cannot be compelled to carry on even a branch of business at a loss, much less the whole

business of carriage.” Id. at 399 (emphasis added). The federal courts of appeals continue to

apply this precedent. In Michigan Bell Telephone, for example, the Sixth Circuit held that the

statute at issue was facially unconstitutional, and explained that a firm is “not required to

subsidize their regulated services . . . with revenues generated from unregulated services.” 257

F.3d at 594-595 (citing Brooks-Scanlon). Likewise here, issuers’ ability to earn revenues from

another line of business provides no justification for the Board’s imposition of a confiscatory

price cap on their debit-card businesses.8

Nor is it an answer to say that issuers could try to recoup lost interchange fees through

charges to debit-card users. The debit-card market is a two-sided market—i.e., “a market for the

provision of a product whose value is realized only if a member of each of two distinct and

8 The decision in Fort Smith Light & Traction Co. v. Bourland, 267 U.S. 330 (1925), is not to the contrary. The order at issue there “d[id] not deal with rates,” and did not impose confiscatory prices upon the streetcar operator. Id. at 332. Moreover, the Supreme Court, citing Brooks-Scanlon, affirmed that the operator could not “in the absence of a contract, be compelled to continue to operate its system at a loss.” Id. at 333.

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complementary sets of users simultaneously agrees to its use.” Robin A. Prager et al.,

Interchange Fees and Payment Card Networks: Economics, Industry Developments, and Policy

Issues 14-15 (2009), http://www.federalreserve.gov/pubs/feds/2009/200923/200923pap.pdf

(citing Rochet & Tirole, Two-Sided Markets: A Progress Report, 37 RAND J. of Econ. 645

(2006)). A shopping mall is a typical example of a two-sided market: a mall operator provides

the shopping mall, whose value is realized only when store owners and shoppers both agree to

use the mall. See generally David S. Evans & Richard Schmalensee, Markets with Two-Sided

Platforms, 1 Issues in Competition Law and Policy 667, 676, 677 (ABA Section of Antitrust

Law 2008). A shopping mall attracts customers in various ways that cost the mall operators

money, and the mall operators then pass those costs along to the store owners in the form of

higher rent. Shoppers then may pay higher prices for goods and services in those stores, without

ever directly seeing the costs the mall operators impose on the store owners.

Like a shopping mall, the debit-card market needs the participation of two sides—the

debit-card holders who must use the cards to make payments and the merchants who must accept

the cards as a form of payment. Debit-card networks charge higher prices to merchants and

lower (or no) prices to debit-card holders in order to attract the latter to the product. Both sides

benefit from the attraction of the other side to the other market, without which the product would

not exist. The costs of the product, however, must be allocated appropriately to best preserve

and grow the market. See generally Evans & Schmalensee, 1 Issues in Competition Law and

Policy at 671-672.

In a two-sided market, the ability to increase charges on the more price-sensitive side of

the market (e.g., mall shoppers or debit-card holders) should not, as a legal matter, excuse a

constitutional problem with an otherwise confiscatory cap on the prices charged to the less price-

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sensitive side of the market (e.g., mall store owners or merchants). In the shopping mall context,

imagine if the Government were to decree that mall operators henceforth could not charge store

owners any rent on existing properties in excess of the incremental cost of the heat, water, and

electricity they use. The Government surely could not justify that confiscatory action as

constitutional on the theory that the mall operator might offset the losses by starting to charge

direct fees on shoppers at the mall entrance, or by cutting maintenance and letting the building

deteriorate. It would be uncertain whether such strategies could even be undertaken. And,

regardless, the effect would be to reduce the number of shoppers and, in turn, reduce the

attractiveness of shopping malls to store owners, obviously reducing the value of the mall’s

business from every perspective.

Similarly here, it is not proper simply to posit that issuers can charge debit-card holders

higher prices equivalent to the lost interchange fee revenue needed to cover their costs and a

reasonable rate of return, and then ignore the confiscatory effects on the debit-card issuing

business. It is especially inappropriate here, when the lost revenue at issue is so monumental—

an 80% drop in revenue amounting to $12 billion annually. At present, it is not possible to

evaluate the precise scope of the substantial loss of customer goodwill that would result if an

issuer were compelled to seek to impose new charges on its debit-card users, or whether many

users would even continue to use debit cards in the face of such price hikes. At a minimum, it

cannot be known with any certainty, and not for some time, whether an issuer actually could

recoup all or even substantially all of the revenues confiscated through the Board Action. On the

contrary, there will be a demonstrable effect on the debit-card business, and one such likely

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effect is that some substantial debit-card-issuing business and substantial goodwill will be

destroyed—i.e., confiscated.9

4. Finally, the Government is wrong in arguing (Br. 25-27) that a more permissive

“rational basis” standard is all that must be met here. Under Duquesne Light and the decisions of

the federal courts of appeals and state supreme courts described above, a confiscatory price

control is an unconstitutional deprivation and taking of property.10 No rational basis inquiry is

appropriate. If price regulation has a confiscatory effect, then that is the end of the matter. See,

e.g., Duquesne Light, 488 U.S. at 307-308.11

9 The merchants suggest yet another alternative—that issuers could evade the Durbin Amendment altogether by setting their own, individual interchange fees because the statute applies only to interchange fees set by a network. See 15 U.S.C. § 1693o-2(c)(8). Contrary to the merchants’ suggestion, however, there is no possible interchange fee in the real world other than a network-established fee. The merchants of course do not suggest that the widescale availability of electronic debit cards as a payment mechanism would be possible without networks. Accepting this reality, the merchants’ suggestion that thousands of issuers and thousands of merchants could negotiate many more thousands of separate, bilateral agreements for issuer-specific interchange fees in addition to a network-set interchange fee is fanciful. And, regardless, no merchant would have any reason to agree to such a separate fee because the merchant reaps the benefits of the network so long as it honors the network’s requirements.10 Neither Pennell v. City of San Jose, 485 U.S. 1 (1988), nor Minnesota Association of Health Care Facilities, are to the contrary. In Pennell, there was no allegation of a confiscatory effect, as the rent control ordinance there accounted for landlords’ costs and market conditions. See 485 U.S. at 9. Hence, there was no cause to apply the Hope Natural Gas rule. The Court applied the rational-basis standard of Nebbia v. New York, 291 U.S. 502 (1934), only in rejecting the distinct argument that the ordinance’s “mere provision” to “consider the hardship of the tenant” in setting rents was facially unconstitutional, “even though no landlord ever ha[d] its rent diminished by as much as one dollar because of the application of this provision.” 485 U.S. at 11. Likewise, in Minnesota Association of Health Care Facilities, the Eighth Circuit applied Nebbia only to reject the argument that the state statute restricting non-Medicaid patient nursing home rates imposed an unconstitutional “condition” on a nursing home operator’s voluntaryentrance into a contract with the Government to participate in the Medicaid program. See 742 F.2d at 446-447. None of these arguments is presented here.11 Even if assessed under the rational-basis framework, however, the Board Action plainly fails. As already noted in Parts I and II, the Board Action is unreasonable and raises serious constitutional concerns. Although the Government contends (Br. 26-27) that the Durbin Amendment is supported by rational bases of giving merchants “leverage” in negotiating interchange fees and in preventing merchants and consumers from bearing a “disproportionate”

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III. IF THE FINAL RULE PRECLUDES ISSUERS FROM RECOVERING THEIR COSTS PLUS AREASONABLE RATE OF RETURN, THEN THE COURT SHOULD PRELIMINARILY ENJOIN THE DURBIN AMENDMENT

The Board Action would inflict substantial and irreparable harm on financial institutions

and consumers, and would be contrary to the public interest, with no clear offsetting benefit to

the broader public. If the Board issues a final rule that does not allow issuers to recover their

costs plus a reasonable rate of return, then this Court should issue a preliminary injunction

staying the effective date of the Durbin Amendment (15 U.S.C. § 1693o-2(a)(9)).

A. The Board’s Narrow Interpretation Of The Durbin Amendment Is Contrary To The Public Interest

The Board Action will inflict significant and irreparable harm upon the millions of

consumers who today receive a variety of free banking products and services, including free

checking, but who will now be subject to increased fees and reduced debit-card services. By

imposing suppressed, artificially low debit-card interchange fees, the Board Action would leave

issuers no option but to try to make up for the reduced interchange fee revenue and cover their

costs of debit-card products and services by either increasing fees for other banking products or

services, reducing the availability of current benefits, or both.12

cost of the debit-card payments system, neither of those rationales support the Board’s egregious interpretation of the statute. To begin with, the Board’s hard price cap does not give merchants “leverage,” but rather total victory. More importantly, the Board has far exceeded whatever mandate it had under the statute to accommodate those aims. Instead, it has radically transferred $12 billion from issuers to merchants, granting the latter a tremendous and unwarranted windfall that enables them to gain all of the benefits of the efficient, convenient, and secure debit-card payments system practically for free, but ultimately shifting the costs of debit-card transactions onto the backs of consumers in the form of higher fees and reduced services. 12 Such were the results in Australia after the government imposed standards requiring substantial reductions in debit-card fees. See Prager et al., Interchange Fees and Payment Card Networks: Economics, Industry Developments, and Policy Issues 39 (2009), http://www.federalreserve.gov/pubs/feds/2009/200923/200923pap.pdf.

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Several specific examples are foreseeable. Most generally, banks may be forced to

institute fees on checking, thereby eliminating the free checking that has served the public

interest by bringing a substantial number of Americans into the financial system. As to debit

cards, potentially high fraud losses could render large debit purchases prohibitively expensive for

issuers, and thereby force issuers to limit the total purchase amount for which debit cards can be

used. Issuers may also be forced to cease debit-card availability for other higher-risk

transactions, such as those where the cardholder is not present (e.g., online payments). The

results of these changes could be particularly devastating for low-income consumers unable to

afford newly imposed fees on formerly free financial services (e.g., checking accounts), who

therefore could be forced out of the mainstream financial system to check cashers and other

loosely regulated non-bank sources of financial services. 13 In addition, if the Board’s

interpretation leads issuers to discourage consumers’ use of debit cards and certain debit-card

transactions, this would almost certainly result in an increased use of cash and checks for retail

purchases, presenting all the disadvantages to consumers, merchants, and the public more

broadly that statutes like the EFTA sought to eliminate through an expanded electronic payments

system. The harms described here would be irreparable: Were a Board rule to go into effect and

the Court were later to find in TCF’s favor, consumers could not be refunded the higher fees they

incur in the meantime, nor could they regain lost opportunities to use their debit cards.

13 See, e.g., Federal Deposit Insurance Corporation, FDIC National Survey of Unbanked and Underbanked Households 18 (Dec. 2009), http://fdic.gov/householdsurvey/full_report.pdf (“Nearly 20 percent of lower-income U.S. households—almost 7 million households earning below $30,000 per year—do not currently have a bank account.”); id. at 25 (“Similar to households that have never had an account, previously banked households had financial reasons, more than any other type of reason, for closing their account. . . . . Notably, nearly one-third (31.4 percent) of previously banked households closed their account because of the costs of maintaining it (i.e., minimum balance requirement, service charges, overdrafts).”).

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The Board Action also threatens irreversible harm to the well-being of American

financial institutions and the stability of the debit-card payments system. By its own estimate,

the Board Action threatens to slash almost $12 billion from financial institutions’ revenues

during a period of continuing financial uncertainty. Prospective losses of this magnitude will

compel structural changes in the financial sector. Issuers will need to fundamentally change

their current business arrangements to find savings, including the possibility of layoffs in an

industry that already has seen recent and severe declines in its workforce. 14 By severely

reducing interchange fee revenues, the Board’s Action also would adversely impact the capital

position of banks and credit unions, thus undermining their ability to lend to businesses and

consumers to support the nascent economic recovery. The precise scope and magnitude of the

changes resulting from the Board Action may be uncertain, but because they will be responses to

a situation created by the Board Action, rather than to facilitate competition and innovation

through market-based advances, the prospects that the compelled changes will benefit

consumers, banks, or the economy more generally are slim. The harms to financial institutions

would be irreparable. Banks and credit unions could not recover the lost revenues, nor,

importantly, could they regain the goodwill of customers faced with increased fees and reduced

financial services.

Finally, because the Board Action would drastically lower interchange fees, debit-card

issuers would have fewer resources to invest in services and products that consumers need or

demand, such as customer service, anti-hacking and other technologies to protect the security of

their systems, and, more generally, in the innovation and development of the existing debit-card

14 See Survey: Fed Debit Card Rule Will Harm Community Bank Customers, ICBA News (Feb. 14, 2011) (noting that 20% of the ICBA’s nearly 5,000 members say they will have to “eliminate jobs or halt plans to open new bank branches” (emphasis in original)).

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network and new methods of payment. Forcibly reducing interchange revenue by 80% annually

(and $12 billion) will have a severe effect on the payments system, making it difficult for banks

to maintain the debit-card system in its current form, much less to continue to build out the

infrastructure that has given consumers the ability to seamlessly and conveniently purchase

goods and services with a single payment vehicle. Issuers will have no incentive, and reduced

ability, to invest in the maintenance and security of the debit-card payments system if they are

unable to recoup the costs of such investments, let alone make any return on capital.

Accordingly, the inevitable result of the Board Action would be the degradation of the dynamism

and efficiency of the payments system.

B. Maintaining The Status Quo Will Not Harm Merchants Or Consumers

A preliminary injunction would impose no change in merchants’ current circumstances.

At worst, it would postpone an unexpected windfall for a later day. Merchants currently pay

debit-interchange fees commensurate with the benefits they receive from issuers’ substantial

investments in debit-card networks. For interchange fees of an average of only 1.14% per

transaction, see 75 Fed. Reg. at 81,725, merchants are able to attract more customers to their

stores and to increase their sales volume; debit cards facilitate faster service for customers, faster

payment for sales, and online commerce. Debit-card transactions process efficiently,

conveniently, and promptly, improving merchant productivity and reducing costs for merchants

compared to check and cash payment. Unlike with checks, debit-card issuers, rather than

merchants, bear the full risk of insufficient customer funds and most of the risk of fraud, which

costs merchants billions of dollars each year.15 These benefits are precisely why so many

15 In 2009 alone there were insufficient funds on transactions worth $103 billion, an amount which dwarfs merchants’ annual interchange fees. See The 2010 Federal Reserve Payments Study, at 9. Check fraud cost merchants $10 billion in 2006. Richard J. Sullivan, Can Smart

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merchants have voluntarily chosen to accept debit cards (which is not required, even if the

merchant accepts credit cards) for the price of current interchange fees. The fees compensate

banks for providing these benefits.

At the same time, were the Board Action to become law, there would be no guarantee

that merchants would pass along reduced interchange fees to consumers in the form of lower

prices. Neither the Durbin Amendment nor the Board’s Action requires merchants to pass any

savings through to consumers. Indeed, when similar caps on debit interchange fees were

imposed in Australia, they yielded no measurable or substantial benefit for Australian

consumers. See GAO, Rising Interchange Fees Have Increased Costs for Merchants, but

Options for Reducing Fees Pose Challenges, GAO-10-45, at 45-46 (Nov. 2009); David Evans &

Richard Schmalensee, The Economics of Interchange Fees and Their Regulation, MIT Sloan

Working Paper No. 4548-05, at 35-36 (May 2005), http://ssrn.com/abstract=744705. Multiple

considerations—e.g., merchants’ desire to set prices based on “focal points” such as $9.99,

merchants’ desire for price predictability, and the small expected savings of only a few cents per

transaction—make it unlikely that merchants will pass on the small cost savings to consumers.16

Merchants—especially big-box retailers—will instead have an incentive to hold onto any gains,

which, while small to consumers on a per-transaction basis, will be large in the aggregate for

merchants. There is thus no assurance that consumers will realize any advantages from reduced

interchange fees.

Cards Reduce Payments Fraud and Identity Theft, at 38 (2008), http://www.kansascityfed.org/Publicat/Econrev/PDF/3q08Sullivan.pdf.16 Merchants’ decision whether to pass on savings from lower interchange fees would also depend on “the merchants’ market power in the final product market.” Prager et al., Interchange Fees and Payment Card Networks, at 47.

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Accordingly, the actual effect of the Durbin Amendment, as implemented by the Board

Action, would be to grant merchants a tremendous windfall, enabling them to gain all of the

benefits of debit-card transactions for a cost far below their value. With no corresponding

benefit to consumers, there is no harm in the Court maintaining the status quo.

C. If The Board Insists Upon Its Current Interpretation Of The Durbin Amendment, Then This Court Should Enter A Preliminary Injunction

Amici believe the statute requires the Board to establish standards that allow for

interchange fees that cover issuers’ costs plus a reasonable rate of return. To date, however, the

Board has interpreted the Durbin Amendment in a manner that raises, rather than avoids, the

serious constitutional issues that TCF discusses in its papers (but attributes to the statute).

The Durbin Amendment provides for the Board to promulgate its final rule by April 21,

2011. Amici are hopeful that the Board will take heed of theirs and others’ comment letters, and

that the final rule will prescribe standards for assessing interchange fees that allow for the

recovery of an issuer’s costs plus a reasonable rate of return. If, however, the final rule suffers

from the same defects as the Board’s current interpretation, and precludes issuers from

recovering their costs plus a reasonable rate of return, then this Court should grant TCF’s request

for a preliminary injunction and stay the effective date of the Durbin Amendment. That would

allow this litigation to proceed, allow this Court to address the serious constitutional issues raised

by the Board’s final rule, avoid irreparable harm to debit-card issuers and consumers, and

preserve for the public interest a sound debit-card payments system.

CONCLUSION

For the foregoing reasons, should the Board issue a final rule that precludes issuers from

recovering their costs plus a reasonable rate of return, then this Court should preliminarily stay

the Durbin Amendment’s effective date pending the conclusion of this litigation.

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Dated this 11th day of March, 2011.

Respectfully submitted,

/s/ James A. Power Roger W. DamgaardJames A. PowerWOODS, FULLER, SHULTZ & SMITH, P.C.300 S. Phillips Avenue, Suite 300Sioux Falls, SD 57104(605) 336-3890Roger.Damgaard@WoodsFuller.comJim.Power@WoodsFuller.com

Attorneys for Amici Curiae The Clearing House Association L.L.C., American Bankers Association, Consumer Bankers Association, Credit Union National Association, The Financial Services Roundtable, Independent Community Bankers of America, Mid-Size Bank Coalition of

America, and National Association of Federal Credit Unions

Seth P. WaxmanSteven P. LehotskyWILMER CUTLER PICKERING

HALE AND DORR LLP1875 Pennsylvania Avenue, NW

Washington, DC 20006

Paul Saltzman Rob HunterTHE CLEARING HOUSE ASSOCIATION L.L.C. 450 West 33rd StreetNew York, NY 10001

H. Rodgin CohenMatthew A. SchwartzSULLIVAN & CROMWELL LLP 125 Broad StreetNew York, NY 10004

Christopher R. LipsettNoah A. LevinePamela K. BookmanWILMER CUTLER PICKERING

HALE AND DORR LLP399 Park AvenueNew York, NY 10022

Attorneys for Amicus The Clearing House Association L.L.C.

- 35 -

Gregory F. TaylorAMERICAN BANKERS ASSOCIATION1120 Connecticut Avenue, NWWashington, DC 20036

Steven I. Zeisel CONSUMER BANKERS ASSOCIATION1000 Wilson Boulevard, Suite 2500Arlington, VA 22209

Eric L. RichardCREDIT UNION NATIONAL ASSOCIATION601 Pennsylvania Avenue, NW, SouthWashington, DC 20004

Rich WhitingFINANCIAL SERVICES ROUNDTABLE1001 Pennsylvania Avenue, NW, Suite 500Washington, DC 20004

Karen M. ThomasINDEPENDENT COMMUNITY BANKERS OF AMERICA

1615 L Street, NW, Suite 900Washington, DC 20036

Mike CahillMID-SIZE BANK COALITION OF AMERICA555 South Flower Street18th FloorLos Angeles, CA 90071

Carrie R. HuntNATIONAL ASSOCIATION OF FEDERAL

CREDIT UNIONS3138 10th Street NorthArlington, VA 22201

- A1 -

APPENDIX A

ALPHABETICAL LIST OF AMICI CURIAE

American Bankers Association

The American Bankers Association (“ABA”) is the principal national trade association of

the financial services industry in the United States. Founded in 1875, the ABA is the voice for

the nation’s $13 trillion banking industry and its 2 million employees. ABA members are

located in each of the fifty States and the District of Columbia, and included financial institutions

of all sizes and types, both large and small.

The Clearing House Association L.L.C.

Established in 1853, The Clearing House is the nation’s oldest banking association and

payments company. Its members include the world’s largest commercial banks, which employ

1.4 million people in the U.S. and hold more than half of all U.S. deposits. The Clearing House

is a nonpartisan advocacy organization representing through regulatory comment letters, amicus

briefs and white papers the interests of its owner banks on a variety of systemically important

banking issues. The Clearing House frequently represents the interests of the banking industry

as amicus curiae in litigation concerning a variety of systemically important banking issues,

including in recent cases in the United States Supreme Court, the United States Courts of

Appeals for the First, Second, Third, Fifth, Ninth, Eleventh, and Federal Circuits, and United

States district courts. The Clearing House Payments Company provides payment, clearing, and

settlement services to its member banks and other financial institutions, clearing almost $2

trillion daily.

Consumer Bankers Association

The Consumer Bankers Association (“CBA”) is the only national financial trade group

focused exclusively on retail banking and personal financial services—banking services geared

- A2 -

toward consumers and small businesses. As the recognized voice on retail banking issues, CBA

provides leadership, education, research, and federal representation on retail banking issues.

CBA members include most of the nation’s largest bank holding companies as well as regional

and super-community banks that collectively hold two-thirds of the industry’s total assets.

Credit Union National Association

The Credit Union National Association (“CUNA”) is the largest credit union advocacy

organization in the country, representing approximately 90 percent of the nation’s nearly 7,700

state and federal credit unions, which serve approximately 93 million members. CUNA benefits

its members by partnering with its state leagues to provide proactive representation, the latest

information on credit union issues, economic reports, regulatory analyses, compliance assistance,

and education.

The Financial Services Roundtable

The Financial Services Roundtable (“Roundtable”) represents 100 of the largest

integrated financial services companies providing banking, insurance, and investment products

and services to the American consumer. Member companies participate through the Chief

Executive Officer and other senior executives nominated by the CEO. Roundtable member

companies provide fuel for America’s economic engine, accounting directly for $92.7 trillion in

managed assets, $1.2 trillion in revenue, and 2.3 million jobs.

Independent Community Bankers of America

The Independent Community Bankers of America (“ICBA”), the nation’s voice for

community banks, represents nearly 5,000 community banks of all sizes and charter types

throughout the United States and is dedicated exclusively to representing the interests of the

community banking industry and the communities and customers of ICBA’s members. With

- A3 -

nearly 5,000 members, representing more than 20,000 locations nationwide and employing

nearly 300,000 Americans, ICBA members hold over $1.2 trillion in assets, $960 billion in

deposits and $750 billion in loans to consumers, small businesses and the agricultural

community.

Mid-Size Bank Coalition of America

The Mid-Size Bank Coalition of America (“MBCA”) is a group of 22 United States

banks formed for the purpose of providing the perspectives of midsize banks on financial

regulatory reform to regulators and legislators. The 22 institutions that comprise the MBCA

operate more than 3,300 branches in 41 States, Washington, DC, and three territories. The

MBCA’s members’ combined assets exceed $322 billion (ranging in size from $7 to $25 billion)

and, together, its members employ approximately 60,000 people. Its member institutions hold

nearly $241 billion in deposits and total loans of more than $195 billion.

National Association of Federal Credit Unions

Founded in 1967, the National Association of Federal Credit Unions (“NAFCU”)

exclusively represents the interests of federal credit unions before the federal government.

Membership in NAFCU is direct; no state or local leagues, chapters or affiliations stand between

NAFCU members and its headquarters in Arlington, VA. NAFCU provides its members with

representation, information, education, and assistance to meet the constant challenges that

cooperative financial institutions face in today’s economic environment. NAFCU represents

nearly 800 federal credit unions, accounting for 63.9 percent of total FCU assets and 58 percent

of all FCU member-owners. NAFCU represents many smaller credit unions with limited

operations as well as many of the largest and most sophisticated credit unions in the nation,

including 82 out of the 100 largest FCUs.

CERTIFICATE OF COMPLIANCE

The undersigned certifies that this Brief Amici Curiae Of The Clearing House

Association L.L.C., American Bankers Association, Consumer Bankers Association, Credit

Union National Association, The Financial Services Roundtable, Independent Community

Bankers Of America, Mid-Size Bank Coalition Of America, And National Association Of

Federal Credit Unions complies with Local Civil Rule 7.1(B)(1) because it contains 10,951

words exclusive of the caption, table of contents, table of authorities, signature block, and

certificate of service.

The brief has been prepared in proportionally spaced typeface using Microsoft Word

2003 in 12 point Times New Roman font. As permitted by Local Civil Rule 7.1(B)(1), the

undersigned has relied upon the word count feature of this word processing system in preparing

this certificate.

Dated this 11th day of March, 2011.

WOODS, FULLER, SHULTZ & SMITH P.C.

By: /s/ James A. PowerJames A. Power Roger W. DamgaardWOODS, FULLER, SHULTZ & SMITH, P.C.300 S. Phillips Avenue, Suite 300Sioux Falls, SD 57104(605) 336-3890Roger.Damgaard@WoodsFuller.comJim.Power@WoodsFuller.com

Attorneys for Amici Curiae The Clearing House Association L.L.C., American Bankers Association, Consumer Bankers Association, Credit Union National Association, The Financial Services Roundtable, Independent Community Bankers of America, Mid-Size Bank Coalition of

America, and National Association of Federal Credit Unions