Before announcing the outcome of the Supreme Court’s decision in Cornerpost Inc. v. Board of Governors of the Federal Reserve System, Justice Amy Coney Barrett joked that it wasn’t the crowd in the courtroom that wanted to hear it, and with the presidential immunity decision being handed down just a few minutes later, the Cornerpost case has been somewhat shut out of the news cycle.
That’s a shame.
Because, whatever one’s view of the tribulations (and trials) of the man Donald J. Trump, what happens during his detention at Corner Post could have a lasting impact on the way we all shop.
Critics say the Corner Post decision is just the latest barrage in the court’s attack on the regulatory state, as it eases the way for people to sue government agencies. But I’m not so sure Barrett’s majority opinion is wrong. And I’m intrigued that the court may soon be asked to examine the merits of the “interchange” fees that merchants pay to banks for debit card transactions.
That may not be a bad thing.
The lawsuit challenges Regulation II, the Federal Reserve’s rules regulating debit card fees that took effect in 2021 under the Dodd-Frank Act. The rules, which apply to cards issued by banks with more than $10 billion in assets, cap debit card fees at 0.05% of the transaction amount plus 21 cents. When Regulation II went into effect, fees immediately fell, with some more than halving them. (Credit cards typically have higher transaction fees, but the plaintiffs in the lawsuit were only challenging debit card fees, presumably because the rules at issue only apply to debit cards.)
Sounds good, right? The problem is, many businesses still think interchange fees are too high, and they’re blaming the Fed. The law requires the Fed to ensure that fees “must be reasonable and commensurate with the costs incurred by the issuer in connection with the transaction.” Retailers argue that the 0.05% plus 21 cents cap is neither reasonable nor commensurate. Efforts to resolve the issue through litigation have been unsuccessful.
Enter Corner Post, a North Dakota truck stop. In 2021, the truck stop filed a lawsuit against the Fed, alleging that the rule’s statutory maximum fees exceed those allowed under Dodd-Frank. What makes this lawsuit unusual is that Regulation II was finalized in 2011 — 10 years before the lawsuit was filed and seven years before Corner Post began operating.
Plaintiffs who wish to facially challenge a federal agency’s rule must bring their lawsuit “within six years after the right to sue first accrued” (the rule is different for lawsuits challenging how the federal agency applied the rule against the plaintiff).
The technical question the justices faced was whether that meant six years after the rules at issue became final, as most federal courts have ruled, or, as the truckstops argued, whether lawsuits could be brought six years after damages were realized, regardless of how long ago the rules went into effect.
In a 6-3 decision, the Supreme Court held that the six-year period begins “when a plaintiff has a complete and present cause of action,” not when the regulation went into effect. In other words, the right of use “accrues” the moment the damage occurs.
Now, here’s where we get a bit existential: In the Cornerpost’s case, the damage wasn’t caused by the truck stop’s absence in 2011, when Regulation II went into effect, or for the seven years thereafter. Rather, the damage was the hundreds of thousands of dollars in card-swipe fees the truck stop ended up paying to the bank — all money paid long after the rest of the retail industry had been forced to comply with the rules, and long after the banks had grown accustomed to the revenue stream.
It’s that last part that worries critics: If we take the majority’s opinion seriously, if I started a new business tomorrow, the next day I could sue almost any government regulation in existence, no matter how old or venerable, so long as that regulation costs me money.
But private companies are frequently sued to stop long-standing practices that allegedly harm plaintiffs. It’s not clear why government agencies shouldn’t take the same risks.
Moreover, most controversial federal regulations are quickly challenged, and most of the challenges fail, so even if a few new lawsuits are successful, the shock to regulated entities would likely be no different from what often happens to rules when a new president takes office.
All of this goes back to the issue of interchange fees themselves. At a policy level, I’m somewhat sympathetic to the argument that they’re too high, not because merchants are suffering, but because customers are suffering.
Especially poor customers.
Both debit and credit card swipe fees are regressive. Except in rare cases where a retailer offers a clear discount for paying with cash (gas stations being a notable example), the fees are built into the price of the item. These fees, in turn, help subsidize credit card rewards, which are best awarded to wealthy shoppers. Those who don’t use plastic (or titanium!) subsidize those who do, paying the same price but receiving no rewards at all. This is a well-known problem. Thus, low-income customers (and seniors) end up subsidizing wealthier customers.
That’s not what Cornerpost had in mind when it filed its lawsuit, and the conundrum may not have a regulatory solution, but only after the rules have been repeatedly tested can serious conversations about these issues take place.
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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Steven L. Carter is a Bloomberg Opinion columnist, a Yale law professor and the author of “Invisible: The Story of the Black Woman Lawyer Who Took Down America’s Most Powerful Mafia.”
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