Last Friday, the U.S. Supreme Court agreed to decide when a right of action first accrues for an Administrative Procedure Act (APA) challenge to a final rule issued by a federal agency—when the final rule is issued or when the rule first causes injury.
In April 2021, the North Dakota Retail Association, North Dakota Petroleum Marketers Association and Corner Post, Inc. filed a lawsuit against the Federal Reserve Board (FRB) in a North Dakota federal district court seeking to invalidate Regulation II’s standard for reasonable and proportional interchange fees on debit cards. Regulation II, which implemented the Durbin Amendment, capped the interchange fee received by large issuers (with $10 billion or more in assets) to 21 cents plus 0.05% of the transaction. It also allowed a 1 cent adjustment if the issuer implements fraud-prevention standards. The complaint alleges that banks continue to profit from debit card fees at retailers’ and consumers’ expense notwithstanding the requirement that the fee be reasonable and proportional. It alleges that the average authorization, clearance and settlement costs for covered issuers (excluding fraud losses) have been less than half of the maximum fee of 21 cents every year since 2009. The plaintiffs argue that the Durbin Amendment requires a case-by-case approach to whether an interchange fee is reasonable and proportional, not a single standard as the FRB adopted.
The complaint, which was filed 10 years after the FRB issued Regulation II, was dismissed by the District Court as time-barred and the Eighth Circuit agreed with the lower court’s ruling. Claims arising under the APA are subject to a six-year statute of limitations under 28 U.S.C. § 2401(a) (“[E]very civil action commenced against the United States shall be barred unless the complaint is filed within six years after the right of action first accrues”). The Eighth Circuit concluded that “when plaintiffs bring a facial challenge to a final agency action, the right of action accrues, and the limitations period begins to run, upon publication of the regulation.” The Eighth Circuit further noted that the plaintiffs failed to show that they were eligible for equitable tolling because they have not shown that they had been diligently pursuing their rights.
In April 2023, Corner Post, Inc. filed a Petition for a Writ of Certiorari with the U.S. Supreme Court without the two plaintiff state trade groups. We assume this was a strategic move because Corner Post did not exist when the FRB rule was issued and therefore is in a better position to argue that equitable tolling should apply. The question presented by the Petition is “Does a plaintiff’s APA claim “first accrue” under 28 U.S.C. §2401(a) when an agency issues a rule—regardless of whether that rule injures the plaintiff on that date (as the Eighth Circuit and five other circuits have held)—or when the rule first causes a plaintiff to “suffer legal wrong” or be “adversely affected or aggrieved” (as the Sixth Circuit has held)?” Corner Post argues the circuit courts are split on when the six-year clock starts for a challenge to rulemaking. The Eighth Circuit’s holding aligns with holdings from the Fourth, Fifth, Ninth, D.C. and Federal Circuits. The Sixth Circuit has ruled that the clock for an APA challenge starts to run when the alleged injury arises from an agency action. In its Opposition to the Petition, the FRB argued that “a ‘right of action first accrues’ within the meaning of Section 2401(a) when the relevant agency rule becomes final and thus reviewable under 5 U.S.C. 704.” The FRB distinguished the Sixth Circuit case on the grounds that the plaintiffs in that case did not allege that the rule in question was facially invalid and instead challenged the enforcement of the rule, which accrues at the time of enforcement.
If the Supreme Court follows the majority circuits, the dismissal will be upheld. If the Supreme Court follows the Sixth Circuit, the ruling could open the door for more APA challenges. Should the Supreme Court reverse the dismissal and remand the case to the district court, the FRB may ultimately need to defend Regulation II on the merits. If the challenge to the rule is successful, the FRB may be required to engage in a new rulemaking to change the calculation of debit card interchange that could further shift the merchants’ risk of loss on financial institutions. A year ago, the FRB expanded Regulation II to require two unaffiliated networks on card not present transactions, which provided merchants the ability to further reduce costs of processing debit card transactions. Meanwhile, consumers are still waiting to see the decreased prices that the merchants promised to pass onto consumers when the Durbin Amendment was enacted.
This summer, U.S. Senators Dick Durbin (D-IL), Roger Marshall, M.D. (R-KS), Peter Welch (D-VT), and J.D. Vance (R-OH) introduced a new bipartisan bill, “The Credit Card Competition Act of 2023,” to enhance competition and reduce interchange fees on credit cards. An identical bill was introduced in the House by U.S. Representative Lance Gooden (R-TX) and referred to the House Committee on Financial Services. The Act would require certain credit card issuers with over $100 billion in assets to enable at least two credit card networks on their credit cards, and at least one of those networks must be a network other than Visa and Mastercard. The Act does not apply to networks that are the card issuer, such as cards issued by American Express and Discover. Senator Durbin introduced a similar bill in 2022. We will watch this years’ bills to see if they can gain any traction in the Senate or House.