More than eight months after the close of briefing, the Texas federal district court has finally ruled in the challenge by two industry trade groups to the CFPB’s Payments Rule. The court’s award of summary judgment to the CFPB on the constitutional challenges to the Rule was predictable. We are disappointed that the court failed to find the Rule’s treatment of debit cards to be arbitrary and capricious but pleased that it sided with the trade groups in granting the industry an additional 286 days to come into compliance with the Rule.
The court’s “analysis” of the debit card argument was confined to a single sentence. According to the court: “The Bureau established the rational connection between the facts found and the choice made when it chose to include debit- and prepaid-card payments in the Payment Provisions.” In reaching this conclusion, the court did not explain the necessary “rational connection between the facts shown”—the Bureau’s recognition that debit card payments almost never give rise to bank NSF fees—and “the choice made” by the Bureau nevertheless to subject debit card payments to the Rule’s restrictions. This failure should provide strong grounds for appeal unless the parties can reach a compromise.
In fact, we believe that a “win-win” compromise is available here: We propose that the trade groups eschew an appeal of the decision (and delays beyond 286 days in implementation of the Rule) in exchange for the Bureau’s clarification that, for dual-message “signature” debit cards, where electronic authorization messages are followed by initiation messages immediately after approval, a declined authorization message is not a “failed payment transfer.” Such a clarification would (1) markedly reduce the Rule’s compliance burdens; (2) lead to widespread industry adoption of debit cards as the primary payment mechanism on credit transactions (despite their greater cost compared to ACH transfers); and (3) produce a tremendous reduction in failed payment transfers and NSF fees—precisely the result the CFPB claimed to seek in the Payments Rule.