United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 17, 2014 Decided March 21, 2014

No. 13-5270

NACS, FORMERLY KNOWN AS NATIONAL ASSOCIATION OF 

CONVENIENCE STORES, ET AL.,

APPELLEES

v.

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM,

APPELLANT

Appeal from the United States District Court

for the District of Columbia

(No. 1:11-cv-02075)

Katherine H. Wheatley, Associate General Counsel, Board 

of Governors of the Federal Reserve System, argued the cause 

for appellant. With her on the briefs were Richard M. Ashton, 

Deputy General Counsel, Yvonne F. Mizusawa, Senior Counsel, 

and Joshua P. Chadwick, Counsel.

Seth P. Waxman argued the cause for amici curiae The 

Clearing House Association, L.L.C., et al. in support of neither 

party. With him on the brief were Albinas Prizgintas, Noah A. 

Levine, and Alan Schoenfeld. 
2

Shannen W. Coffin argued the cause for appellees. With him 

on the brief was Linda C. Bailey.

Andrew G. Celli Jr., Ilann M. Maazel, and O. Andrew F. 

Wilson were on the brief for amicus curiae The Retail Litigation 

Center, Inc. in support of appellees.

Jeffrey I. Shinder was on the brief for amici curiae 

7-Eleven, Inc., et al. in support of appellees.

David A. Balto was on the brief for amicus curiae United 

States Senator Richard J. Durbin in support of appellees.

Before: TATEL, Circuit Judge, and EDWARDS and 

WILLIAMS, Senior Circuit Judges.

Opinion for the Court filed by Circuit Judge TATEL.

TATEL, Circuit Judge: Combining features of credit cards 

and checks, debit cards have become not just the most popular 

noncash payment method in the United States but also a source 

of substantial revenue for banks and companies like Visa and

MasterCard that own and operate debit card networks. In 2009 

alone, debit card holders used their cards 37.6 billion times, 

completing transactions worth over $1.4 trillion and yielding

over $20 billion in fees for banks and networks. Concerned that 

these fees were excessive and that merchants, who pay the fees 

directly, and consumers, who pay a portion of the fees indirectly 

in the form of higher prices, lacked any ability to resist them, 

Congress included a provision in the Dodd-Frank financial 

reform act directing the Board of Governors of the Federal 

Reserve System to address this perceived market failure. In 

response, the Board issued regulations imposing a cap on the 

per-transaction fees banks receive and, in an effort to force 
3

networks to compete for merchants’ business, requiring that at 

least two networks owned and operated by different companies 

be able to process transactions on each debit card. Merchant 

groups challenged the regulations, seeking lower fees and even 

more network competition. The district court granted summary 

judgment to the merchants, concluding that the rules violate the 

statute’s plain language. We disagree. Applying traditional tools 

of statutory interpretation, we hold that the Board’s rules 

generally rest on reasonable constructions of the statute, though 

we remand one minor issue—the Board’s treatment of so-called 

transactions-monitoring costs—to the Board for further 

explanation.

I.

Understanding this case requires looking under the hood—

or, more accurately, behind the teller’s window—to see what 

really happens when customers use their debit cards. After 

providing some background about debit cards and the debit card 

marketplace, we outline Congress’s effort to solve several 

perceived market failures, the Board’s attempt to put Congress’s 

directives into action, and the district court’s rejection of the

Board’s approach. 

A.

We start with the basics. For purposes of this case, the term 

“debit card” describes both traditional debit cards, which allow 

cardholders to deduct money directly from their bank accounts, 

and prepaid cards, which come loaded with a certain amount of 

money that cardholders can spend down and, in some cases, 

replenish. Debit card transactions are typically processed using 

what is often called a “four party system.” The four parties are 

the cardholder who makes the purchase, the merchant who 

accepts the debit card payment, the cardholder’s bank (called the 

“issuer” because it issues the debit card to the cardholder), and 
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the merchant’s bank (called the “acquirer” because it acquires 

funds from the cardholder and deposits those funds in the 

merchant’s account). In addition, each debit transaction is 

processed on a particular debit card “network,” often affiliated 

with MasterCard or Visa. The network transmits information 

between the cardholder/issuer side of the transaction and the 

merchant/acquirer side. Issuers activate certain networks on 

debit cards, and only activated networks can process transactions 

on those cards.

Virtually all debit card transactions fall into one of two 

categories: personal identification number (PIN) or signature. 

PIN and signature transactions employ different methods of 

“authentication”—a process that establishesthat the cardholder, 

and not a thief, has actually initiated the transaction. In PIN 

authentication, the cardholder usually enters her PIN into a 

terminal. In signature authentication, the cardholder usually

signs a copy of the receipt. Most networks can process either 

PIN transactions or signature transactions, but not both. 

Signature networks employ infrastructure used to process credit 

card payments, while PIN networks employ infrastructure used 

by ATMs. Only about one-quarter of merchants currently accept 

PIN debit. Some merchants have never acquired the terminals 

needed for customers to enter their PINs, while others believe

that signature debit better suits their business needs. More about 

this later. And merchants who sell online generally refuse to 

accept PIN debit because customers worry about providing PINs 

over the Internet. Merchants who do accept both PIN and 

signature debit often allow customers to select whether to 

process particular transactions on a PIN network or a signature 

network.

Whether PIN or signature, a debit card transaction is 

processed in three stages: authorization, clearance, and 
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settlement. Authorization begins when the cardholderswipes her 

debit card, which sends an electronic “authorization request” to 

the acquirer conveying the cardholder’s account information and 

the transaction’s value. The acquirer then forwards that request 

along the network to the issuer. Once the issuer has determined

whether the cardholder has sufficient funds in her account to 

complete the transaction and whether the transaction appears 

fraudulent, itsends a response to the merchant along the network 

approving or rejecting the transaction. Even if the issuer 

approves the transaction, that transaction still must be cleared 

and settled before any money changes hands.

Clearance constitutes a formal request for payment sent 

from the merchant on the network to the issuer. PIN transactions 

are authorized and cleared simultaneously: because the 

cardholder generally enters her PIN immediately after swiping 

her card, the authorization request doubles as the clearance 

message. Signature transactions are first authorized and 

subsequently cleared: because the cardholder generally signs 

only after the issuer has approved the transaction, the merchant 

mustsend a separate clearance message. This difference between

PIN and signature processing explains why certain businesses,

including car rental companies, hotels, and sit-down restaurants,

often refuse to accept PIN debit. Car rental companies authorize 

transactions at pick-up to ensure that customers have enough 

money in their accounts to pay but postpone clearance to allow 

for the possibility that the customer might damage the vehicle or 

return it without a full tank of gas. Hotels authorize transactions 

at check-in but postpone clearance to allow for the possibility 

that the guest might trash the room, order room service, or 

abscond with the towels and robes. And sit-down restaurants

authorize transactions for the full amount of the meal but 

postpone clearance to give diners an opportunity to add a tip.
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The final debit card payment processing step, settlement, 

involves the actual transfer of funds from the issuer to the 

acquirer. After settlement, the cardholder’s account has been 

debited, the merchant’s account has been credited, and the 

transaction has concluded. Rather than settle transactions oneby-one, banks generally employ companies that determine each 

bank’s net debtor/creditor position over a large number of 

transactions and then settle those transactions simultaneously.

Along the way, and central to this case, the parties charge 

each other various fees. The issuer charges the acquirer an 

“interchange fee,” sometimes called a “swipe fee,” which 

compensates the issuer for its role in processing the transaction. 

The network charges both the issuer and the acquirer “network 

processing fees,” otherwise known as “switch fees,” which 

compensate the network for its role in processing the 

transaction. Finally, the acquirer charges the merchant a 

“merchant discount,” the difference between the transaction’s 

face value and the amount the acquirer actually credits the 

merchant’s account. Because the merchant discount includes the 

full value of the interchange fee, the acquirer’s portion of the 

network processing fee, other acquirer and network costs, and a 

markup, merchants end up paying most of the costs acquirers 

and issuers incur. Merchants in turn pass some of these costs 

along to consumers in the form of higher prices. In contrast to

credit card fees, which generally represent a set percentage of 

the value of a transaction, debit card fees change little as price 

increases. Thus, a bookstore might pay the same fees to sell a 

$25 hardcover that Mercedes would pay to sell a $75,000 car. 

Before the Board promulgated the rules challenged in this 

case, networks and issuers took advantage of three quirks in the 

debit card market to increase fees without losing much business. 

First, issuers had complete discretion to decide whether to 
7

activate certain networks on their cards. For instance, an issuer 

could limit payment processing to one Visa signature network, a 

Visa signature network and a Visa PIN network, or Visa and

MasterCard signature and PIN networks. Second, networks had 

complete discretion to set the level of interchange and network 

processing fees. Finally, Visa and MasterCard controlled most of 

the debit card market. According to one study entered into the 

record, in 2009 networks affiliated with Visa or MasterCard 

processed over eighty percent of all debit transactions. Steven C. 

Salop, et al., Economic Analysis of Debit Card Regulation 

Under Section 920, Paper for the Board of Governors of the 

Federal Reserve System 10 (Oct. 27, 2010). Making things

worse for merchants, these companies imposed “Honor All 

Cards” rules that prohibited merchants from accepting some but 

not all of their credit cards and signature debit cards. Merchants 

were therefore stuck paying whatever fees Visa and MasterCard 

chose to set, unless they refused to accept any Visa and 

MasterCard credit and signature debit cards—hardly a realistic 

option for most merchants given the popularity of plastic.

Exercising this market power, issuers and networks often 

entered into mutually beneficial agreements under which issuers 

required merchantsto route transactions on certain networks that 

generally charged high processing fees so long asthose networks 

also set high interchange fees. Many of these agreements were 

exclusive, meaning that issuers agreed to activate only one 

network or only networks affiliated with one company. 

Networks and issuers also negotiated routing priority 

agreements, which forced merchants to process transactions on 

certain activated networks rather than others. By 2009, 

interchange and network processing fees had reached, on 

average, 55.5 cents per transaction, including a 44 cent 

interchange fee, a 6.5 cent network processing fee charged to the 

issuer, and a 5 cent network processing fee charged to the 
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acquirer. Debit Card Interchange Fees and Routing, Notice of 

Proposed Rulemaking (“NPRM”), 75 Fed. Reg. 81,722, 81,725 

(Dec. 28, 2010).

B.

Seeking to correct the market defects that were contributing 

to high and escalating fees, Congress passed the Durbin 

Amendment as part of the 2010 Dodd-Frank Wall Street Reform 

and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 

1376 (2010). The amendment, which modified the Electronic 

Funds Transfer Act (EFTA), Pub. L. No. 95-630, 92 Stat. 3641

(1978), contains two key provisions. The first, EFTA section 

920(a), restricts the amount of the interchange fee. Specifically, 

it instructs the Board of Governors of the Federal Reserve 

System to promulgate regulations ensuring that “the amount of 

any interchange transaction 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); see also id. § 

1693o-2(a)(6)–(7)(A) (exempting debit cards issued by banks 

that, combined with all affiliates, have assets of less than $10 

billion and debit cards affiliated with certain government 

payment programs from interchange fee regulations). To this 

end, section 920(a)(4)(B), in language the parties hotly debate,

requires the Board to “distinguish between . . . the incremental 

cost incurred by an issuer for the role of the issuer in the 

authorization, clearance, or settlement of a particular debit 

transaction, which cost shall be considered . . . , [and] other 

costs incurred by an issuer which are not specific to a particular 

electronic debit transaction, which costs shall not be 

considered.” Id. § 1693o-2(a)(4)(B)(i)-(ii). Like the parties, we 

shall refer to the costs of “authorization, clearance, and 

settlement” as “ACS costs.” In addition, section 920(a) “allow[s]

for an adjustment to the fee amount received or charged by an 

issuer” to compensate for “costs incurred by the issuer in 
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preventing fraud in relation to electronic debit transactions 

involving that issuer,” so long as the issuer “complies with the 

fraud-related standards established by the Board.” Id. § 1693o2(a)(5)(A).

The second key provision, EFTA section 920(b), prohibits 

certain exclusivity and routing priority agreements. Specifically, 

it instructs the Board to promulgate regulations preventing any 

“issuer or payment card network” from “restrict[ing] the number 

of payment card networks on which an electronic debit 

transaction may be processed to . . . 1 such network; or . . . 2 or 

more [affiliated networks].” Id. § 1693o-2(b)(1)(A). It also 

directs the Board to prescribe regulations that prohibit issuers 

and networks from “inhibit[ing] the ability of any person who 

accepts debit cards for payments to direct the routing of 

electronic debit transactions for processing over any payment 

card network that may process such transactions.” Id. § 1693o2(b)(1)(B). Congress anticipated that these prohibitions would 

force networks to compete for merchants’ business, thus driving 

down fees. 

C.

In late 2010, the Board proposed rules to implement 

sections 920(a) and (b). As for section 920(a), the Board 

proposed allowing issuers to recover only “incremental” ACS 

costs and interpreted “incremental” ACS costs to mean costs 

that “vary with the number of transactions” an issuer processes 

over the course of a year. NPRM, 75 Fed. Reg. at 81,735. Issuers 

would thus be unable to recover “costs that are common to all 

debit card transactions and could never be attributed to any 

particular transaction (i.e., fixed costs), even if those costs are 

specific to debit card transactions as a whole.” Id. at 81,736. The 

Board “recognize[d]” that this definition would “impose[] a 

burden on issuers by requiring issuers to segregate costs that 
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vary with the number of transactions from those that are largely 

invariant to the number of transactions” and “that excluding 

fixed costs may prevent issuers from recovering through 

interchange fees some costs associated with debit card 

transactions.” Id. The Board nonetheless determined that other 

definitions of “incremental cost” “do not appropriately reflect 

the incremental cost of a particular transaction to which the 

statute refers.” Id. at 81,735. Limiting the interchange fee to 

average variable ACS costs, the Board proposed allowing 

issuers to recover at most 12 cents per transaction—considerably

less than the 44 cents issuers had previously received on 

average. Id. at 81,736–39. 

After evaluating thousands of comments, the Board issued a 

Final Rule that almost doubled the proposed cap. The Board 

abandoned its proposal to define “incremental” ACS costs to 

mean average variable ACS costs, deciding instead not to define 

the term “incremental costs” at all. Debit Card Interchange Fees 

and Routing, Final Rule (“Final Rule”), 76 Fed. Reg. 43,394, 

43,426–27 (July 20, 2011). Observing that “the requirement that 

one set of costs be considered and another set of costs be 

excluded suggests that Congress left to the implementing agency 

discretion to consider costs that fall into neither category to the 

extent necessary and appropriate to fulfill the purposes of the 

statute,” the Board allowed issuers to recover all costs “other 

than prohibited costs.” Id. Thus, in addition to average variable 

ACS costs, issuers could recover: (1) what the proposed rule had 

referred to as “fixed” ACS costs; (2) costs issuers incur as a 

result of transactions-monitoring to prevent fraud; (3) fraud 

losses, which are costs issuers incur as a result of settling 

fraudulent transactions; and (4) network processing fees. Id. at 

43,429–31. The Board prohibited issuers from recovering other 

costs, such as corporate overhead and debit card production and 

delivery costs, that the Board determined were not incurred to 
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process specific transactions. Id. at 43,427–29. Accounting for

all permissible costs, the Board raised the interchange fee cap to 

21 cents plus an ad valorem component of 5 basis points (.05 

percent of a transaction’s value) to compensate issuers for fraud 

losses. Id. at 43,404. 

In response to section 920(b), the Board’s proposed rule

outlined two possible approaches. Under “Alternative A,”

issuers would have to activate at least two unaffiliated networks 

on each debit card regardless of method of authentication. 

NPRM, 75 Fed. Reg. at 81,749. For example, an issuer could

activate a Visa signature network and a MasterCard PIN 

network. Under “Alternative B,” issuers would have to activate 

at least two unaffiliated networks for each method of 

authentication. Id. at 81,749–50. For example, an issuer could 

activate both Visa and MasterCard signature and PIN networks. 

In the Final Rule the Board chose Alternative A. 

Acknowledging that “Alternative A provides merchants fewer 

routing options,” the Board reasoned that it satisfied statutory 

requirements and advanced Congress’s desire to enhance 

competition among networks without excessively undermining 

the ability of cardholdersto route transactions on their preferred 

networks or “potentially limit[ing] the development and 

introduction of new authentication methods.” Final Rule, 76 

Fed. Reg. at 43,448. 

D.

Upset that the Board had nearly doubled the interchange fee

cap (as compared to the proposed rule) and had selected the less 

restrictive anti-exclusivity option, several merchant groups, 

including NACS, the organization formerly known as the 

National Association of Convenience Stores, filed suit in district 

court. The merchants argued that both rules violate the plain 
12

terms of the Durbin Amendment: the interchange fee cap 

because the statute allows issuers to recover only average 

variable ACS costs, not “fixed” ACS costs, transactionsmonitoring costs, fraud losses, or network processing fees; and 

the anti-exclusivity rule because the statute requires that all 

merchants—even those who refuse to accept PIN debit—be able 

to route each debit transaction on multiple unaffiliated networks.

Several financial services industry groups, which during 

rulemaking had urged the Board to set an even higher 

interchange fee cap and adopt an even less restrictive antiexclusivity rule, participated as amici curiae in support of 

neither party. 

The district court granted summary judgment to the 

merchants. The court began by observing that “[a]ccording to 

the Board, [the statute contains] ambiguity that the Board has 

discretion to resolve. How convenient.” NACS v. Board of 

Governors of the Federal Reserve System, 958 F. Supp. 2d 85, 

101 (D.D.C. 2013). Rejecting this view, the district court 

determined that the Durbin Amendment is “clear with regard to 

what costs the Board may consider in setting the interchange fee 

standard: Incremental ACS costs of individual transactions 

incurred by issuers may be considered. That’s it!” Id. at 105. The 

district court thus concluded that the Board had erred in 

allowing issuers to recover “fixed” ACS costs, transactionsmonitoring costs, fraud losses, and network processing fees. Id.

at 105–09. The court also agreed with the merchants that section 

920(b) unambiguously requires that all merchants be able to 

route every transaction on at least two unaffiliated networks. Id. 

at 109–14. The Board’s final anti-exclusivity rule, the district 

court held, “not only fails to carry out Congress’s intention; it 

effectively countermands it!” Id. at 112. Concluding that “the 

Board completely misunderstood the Durbin Amendment’s 

statutory directive and interpreted the law in ways that were 
13

clearly foreclosed by Congress,” the district court vacated and 

remanded both the interchange fee rule and the anti-exclusivity 

rule. Id. at 114. But because regulated parties had already “made 

extensive commitments” in reliance on the Board’s rules, the 

district court stayed vacatur to provide the Board a short period 

of time in which to promulgate new rules consistent with the 

statute. Id. at 115. Subsequently, the district court granted a stay 

pending appeal.

The Board now appeals, arguing that both rules rest on 

reasonable constructions of ambiguous statutory language. 

Financial services amici, urging reversal but still ostensibly 

appearing in support of neither party, filed a brief and 

participated in oral argument—though we have considered only 

those arguments that at least one party has not disavowed. See 

Eldred v. Reno, 239 F.3d 372, 378 (D.C. Cir. 2001) (noting that 

arguments “rejected by the actual parties to this case” are “not 

properly before us”); Eldred v. Ashcroft, 255 F.3d 849, 854 

(D.C. Cir. 2001) (Sentelle, J., dissenting from denial of 

rehearing en banc) (“Under the panel’s holding, it is now the law 

of this circuit that amici are precluded both from raising new 

issues and from raising new arguments.”). In a case like this, “in 

which the District Court reviewed an agency action under the 

[Administrative Procedures Act], we review the administrative 

action directly, according no particular deference to the 

judgment of the District Court.” In re Polar Bear Endangered 

Species Act Listing and Section 4(d) Rule Litigation, 720 F.3d 

354, 358 (D.C. Cir. 2013) (internal quotation marks omitted). 

Because the Board has sole discretion to administer the Durbin 

Amendment, we apply the familiar two-step framework set forth 

in Chevron U.S.A. Inc. v. Natural Resources Defense Council, 

Inc., 467 U.S. 837 (1984). At Chevron’s first step, we consider 

whether, as the district court concluded, Congress has “directly 

spoken to the precise question at issue.” Id. at 842. If not, we 
14

proceed to Chevron’s second step where we determine whether 

the Board’s rules rest on “reasonable” interpretations of the 

Durbin Amendment. Id. at 844. 

Before addressing the parties’ arguments, we think it worth

emphasizing that Congress put the Board, the district court, and 

us in a real bind. Perhaps unsurprising given that the Durbin 

Amendment was crafted in conference committee at the eleventh 

hour, its language is confusing and its structure convoluted. But 

because neither agencies nor courts have authority to disregard 

the demands of even poorly drafted legislation, we must do our 

best to discern Congress’s intent and to determine whether the 

Board’s regulations are faithful to it.

II.

We begin with the interchange fee. Recall that section 

920(a)(4)(B)(i) requires the Board to include “incremental 

cost[s] incurred by an issuer for the role of the issuer in the 

authorization, clearance, or settlement of a particular electronic 

debit transaction,” and that section 920(a)(4)(B)(ii) prohibitsthe 

Board from including “other costs incurred by an issuer which 

are not specific to a particular electronic debit transaction.” 

Echoing the district court, the merchants argue that the two 

sections unambiguously permit issuers to recover only 

“incremental” ACS costs. “The plain language of the Durbin 

Amendment,” the merchants insist, “does not grant the Board 

the discretion it claims to consider costs beyond those delineated 

in Section 920(a)(4)(B).” Appellees’ Br. 26; see also NACS, 958 

F. Supp. 2d at 100 (noting that the district court had “no 

difficulty concluding that the statutory language evidences an 

intent by Congress to bifurcate the entire universe of costs 

associated with interchange fees”). Alternatively, the merchants 

briefly argue that even if section 920(a)(4)(B) is ambiguous, the 

Board’s resolution of that ambiguity was unreasonable—though
15

they acknowledge that this argument essentially rehashes their 

Chevron step one argument. See Appellees’ Br. 44 (“Many of 

the same arguments discussed above also demonstrate the 

unreasonableness of the interchange fee standard.”). The Board 

also thinks the Durbin Amendment is unambiguous, though it 

argues that the statute clearly establishes a third category of 

costs: those that are not “incremental” ACS costs but are 

specific to a particular transaction. See Final Rule, 76 Fed. Reg. 

at 43,426 (“[T]here exist costs that are not encompassed in 

either the set of costs the Board must consider under Section 

920(a)(4)(B)(i), or the set of costs the Board may not consider 

under Section 920(a)(4)(B)(ii).”). Relying on the requirement

that the interchange transaction fee be “reasonable and 

proportional to the cost incurred by the issuer with respect to the 

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

concludes that it may but need not allow issuers to recover costs 

falling within this third category, subject of course to other 

statutory constraints. Like the merchants, the Board also offers a 

Chevron step two argument. See Appellant’s Br. 71 (“Even 

assuming for the sake of argument that the district court offered 

a possible reading, the statute does not unambiguously foreclose 

the Board’s construction . . . .”).

The parties’ competing arguments present us with two 

options. Were we to agree with the merchants that the statute 

allows recovery only of “incremental” ACS costs, we would 

have to invalidate the rule without considering the particular 

categories of costs the merchants challenge given that the Board 

expressly declined to define the ambiguous statutory term 

“incremental,” let alone determine whether those particular types 

of costs qualify as “incremental” ACS costs. See Securities & 

Exchange Commission v. Chenery Corp., 318 U.S. 80, 87 (1943) 

(“The grounds upon which an administrative order must be 

judged are those upon which the record discloses that its action 
16

was based.”). Were we to determine that the Board’s reading of 

section 920(a)(4)(B) is either compelled by the statute or 

reasonable, we would have to go on to consider whether the 

statute allows recovery of “fixed” ACS costs, transactionsmonitoring costs, fraud losses, and network processing fees. We 

must therefore first decide whether section 920(a)(4)(B) 

bifurcatesthe entire universe of costs the Board may consider, or 

whether the statute allows for the existence of a third category of 

costs that falls outside the two categories specifically listed.

A.

The Board may well have been able to interpret section

920(a)(4)(B) as the merchants urge. Such a reading could rely on 

the statutory mandate to “distinguish between” one set of costs 

and “other costs,” and could interpret section 920(a)(4)(B)(i) as 

referring to variable costs and section 920(a)(4)(B)(ii) as 

referring to fixed costs. But contrary to the merchants’ position, 

and consistent with the Board’s Chevron step two argument, we 

certainly see nothing in the statute’s language compelling that 

result. The merchants’ preferred reading requires assuming that 

the phrase “incremental cost incurred by the issuer for the role of 

the issuer in the authorization, clearance, and settlement of a 

particular electronic debit transaction” describes all issuer costs 

“specific to a particular electronic debit transaction.” For several 

reasons, however, we believe that phrase could just as easily, if 

not more easily, be read to qualify the language of section

920(a)(4)(B)(i) such that it encompasses a subset of costs 

specific to a particular transaction, leaving other costs specific to 

a particular transaction unmentioned.

To begin with, as the Board pointed out in the Final Rule, 

the phrase “incremental cost” has a several possible definitions,

including marginal cost, variable cost, “the cost of producing 

some increment of output greater than a single unit but less than
17

the entire production run,” and “the difference between the cost 

incurred by a firm if it produces a particular quantity of a good 

and the cost incurred by the firm if it does not produce the good 

at all.” Final Rule, 76 Fed. Reg. at 43,426–27. As a result, 

depending on how these terms are defined, the category of 

“incremental” costs would not necessarily encompass all costs 

that are “specific to a particular electronic debit transaction.” See 

infra at 26 (noting the parties’ agreement that the “specific to a 

particular electronic debit transaction” phrase should not be read 

to limit issuers to recovering only the marginal cost of each 

particular transaction).

Second, the phrase “incurred by an issuer for the role of the 

issuer in the authorization, clearance, or settlement of a 

particular electronic debit transaction” limits the class of 

“incremental” costs the Board must consider. So even if the 

word “incremental” were read to include all costs specific to a 

particular transaction, Congress left unmentioned incremental

costs other than incremental ACS costs. See Final Rule, 76 Fed. 

Reg. at 43,426 n.116 (“The reference in Section 920(a)(4)(B)(i) 

requiring consideration of the incremental costs incurred in the 

‘authorization, clearance, or settlement of a particular 

transaction’ and the reference in section 920(a)(4)(B)(ii) 

prohibiting consideration of costs that are ‘not specific to a 

particular electronic debit transaction,’ read together, recognize 

that there may be costs that are specific to a particular electronic 

debit transaction that are not incurred in the authorization, 

clearance, or settlement of that transaction.”). For example, in 

the proposed rule the Board determined that “cardholder rewards 

that are paid by the issuer to the cardholder for each transaction” 

and “costs associated with providing customer service to 

cardholders for particular transactions” are “associated with a 

particular transaction” but “are not incurred by the issuer for its 

role in authorization, clearing, and settlement of that 
18

transaction.” NPRM, 75 Fed. Reg. at 81,735. Moreover, in the 

Final Rule the Board explained that fraud losses “are specific to 

a particular transaction” because they result from the settlement 

of particular fraudulent transactions, but are not incurred by the 

issuer for the role of the issuer in the authorization, clearance, or 

settlement of particular transactions. Final Rule, 76 Fed. Reg. at 

43,431 (describing fraud losses as “the result of an issuer’s 

authorization, clearance, or settlement of a particular electronic 

debit transaction that the cardholder later identifies as 

fraudulent”); see also Appellant’s Br. 67 (defending the Board’s 

decision to allow issuers to recover some fraud losses on the 

ground that fraud losses fall outside section 920(a)(4)(B)).

Third, as the Board pointed out, had Congress wanted to 

allow issuers to recover only incremental ACS costs, it could 

have done so directly. See Final Rule, 76 Fed. Reg. at 43,426. 

For instance, in section 920(a)(3)(A) Congress could have 

instructed the Board to “promulgate regulations ensuring that 

interchange fees are reasonable and proportional to the 

incremental costs of authorization, clearance, and settlement that 

an issuer incurs with respect to a particular electronic debit 

transaction.” Instead, in section 920(a)(3)(A) Congress required 

the Board to promulgate regulations ensuring that interchange 

fees are “reasonable and proportional to the cost incurred by the 

issuer with respect to the transaction” and separately instructed 

the Board, when determining issuer costs, to “distinguish 

between” incremental ACS costs, which the Board must 

consider, 15 U.S.C. § 1693o-2(a)(4)(B)(i), and “other costs . . . 

which are not specific to a particular electronic debit 

transaction,” which the Board must not consider, id. § 1693o2(a)(4)(B)(ii). 

The merchants advance several arguments in support of the 

opposite conclusion. They first assert that the “which” clause in 
19

the phrase “other costs incurred by an issuer which are not 

specific to a particular electronic debit transaction” should be 

read descriptively rather than restrictively. As their labels 

suggest, descriptive clauses explain, while restrictive clauses

define. To illustrate, consider a simple sentence: “the cars which 

are blue have sunroofs.” Read descriptively, the clause “which 

are blue” states a fact about the entire class of cars, which also 

happen to have sunroofs. Read restrictively, the clause defines a

particular class of cars—blue cars—all of which have sunroofs. 

Although often subtle, the distinction between descriptive and 

restrictive clauses makes all the difference in this case. Here’s 

why. 

We have thus far assumed that section 920(a)(4)(B)(ii)’s 

“which” clause should be read restrictively. On this reading (the 

Board’s), the clause defines the class of “other costs” issuers are 

precluded from recovering. As explained above, based on this 

restrictive reading the Board reasonably concluded that the 

statute establishes three categories of costs. But if the clause 

should instead be read descriptively, then it would describe a 

characteristic of “other costs” without limiting the meaning of 

“other costs.” On this reading (the merchants’), the statute

bifurcates the entire universe of costs, requiring the Board to 

define the statutory term “incremental cost incurred by an issuer 

for the role of the issuer in the authorization, clearance, or 

settlement of a particular electronic debit transaction” as 

including all costs other than costs “not specific to a particular 

electronic debit transaction.” 

Normally, writers distinguish between descriptive and 

restrictive clauses by setting the former but not the latter aside

with commas and by introducing the former with “which” and 

the latter with “that.” Here, Congress introduced the clause at 

issue with the word “which” but failed to set it aside with 
20

commas. Word choice thus suggests a descriptive reading of the 

clause, while punctuation suggests a restrictive reading. In 

support of a descriptive reading, the merchants rely on a ninetyyear-old Supreme Court case for the proposition that

“[p]unctuation is a minor, and not a controlling, element in 

interpretation.” Barrett v. Van Pelt, 268 U.S. 86, 91 (1925); see 

also NACS, 958 F. Supp. 2d at 102 (calling Congress’s failure to 

use commas a “red herring”). This decision provides the 

merchants little help. Not only was it written long before the 

development of modern approaches to statutory interpretation, 

see U.S. National Bank of Oregon v. Independent Insurance 

Agents of America, Inc., 508 U.S. 439, 454–55 (1993) (noting 

that although reliance on punctuation must not “distort[] a 

statute’s true meaning,” “[a] statute’s plain meaning must be 

enforced, of course, and the meaning of a statute will typically 

heed the commands of its punctuation”), but it addressed 

statutory language that, unlike here, contained a clearly 

misplaced comma, Barrett, 268 U.S. at 88 (interpreting a statute 

“so inapt and defective that it is difficult to give it a construction 

that is wholly satisfactory” without ignoring its comma). 

The idea that we should entirely ignore punctuation would 

make English teachers cringe. Even if punctuation is sometimes

a minor element in interpreting the meaning of language, 

punctuation is often crucial—a reader might appropriately gloss 

over a comma mistakenly inserted between a noun and a verb 

yet pay extra attention to a comma or semicolon setting off 

separate items in a list. Following the merchants’ advice and 

stuffing punctuation to the bottom of the interpretive toolbox 

would run the risk of distorting the meaning of statutory 

language. After all, Congress communicates through written

language, and one component of written language is grammar, 

including punctuation. As Strunk and White puts it, “the best 

writers sometimes disregard the rules of rhetoric. When they do 
21

so, however, the reader will usually find in the sentence some 

compensating merit, attained at the cost of the violation. Unless 

he is certain of doing as well, he will probably do best to follow 

the rules.” WILLIAM STRUNK,JR.&E.B.WHITE, THE ELEMENTS 

OF STYLE xvii–xviii (4th ed. 2000) (internal quotation marks 

omitted). Put another way, “all our thoughts can be rendered 

with absolute clarity if we bother to put the right dots and 

squiggles between the words in the right places.” LYNN TRUSS,

EATS, SHOOTS & LEAVES 201–02 (2003).

In this instance, the absence of commas matters far more 

than Congress’s use of the word “which” rather than “that.”

Widely-respected style guides expressly require that commas set 

off descriptive clauses, but refer to descriptive “which” and 

restrictive “that” as a style preference rather than an ironclad

grammatical rule. As The Chicago Manual of Style explains:

A relative clause that is restrictive—that is, essential to 

the meaning of the sentence—is neither preceded nor 

followed by a comma. But a relative clause that could 

be omitted without essential loss of meaning (a 

nonrestrictive clause) should be both preceded and (if 

the sentence continues) followed by a comma. 

Although which can be used restrictively, many careful 

writers preserve the distinction between restrictive that

(no commas) and descriptive which (commas).

THE CHICAGO MANUAL OF STYLE 250 (14th ed. 2003).Compare 

STRUNK & WHITE at 3–4 (“Nonrestrictive relative clauses are

parenthetic. . . . Commas are therefore needed.”), and WILSON 

FOLLETT, MODERN AMERICAN USAGE: A GUIDE 69 (Erik 

Wensberg ed., 1998) (same), with STRUNK &WHITE at 59 (“The 

use of which for that is common in written and spoken language. 

. . . Occasionally which seems preferable to that . . . But it would 

be a convenience to all if these two pronouns were used with 
22

precision.”), and FOLLETT at 293 (“The alert reader will notice 

that quite a few excellent authors decline to use that and which

in precisely the ways that late-twentieth-century grammar books 

recommend.”). 

In fact, elsewhere in the Durbin Amendment Congress 

demonstrated that it is among those writers who ignore the 

distinction between descriptive “which” and restrictive “that.” In 

section 920(b)(1)(A), for example, Congress instructed the 

Board to prevent networks and issuers from activating on a debit 

card only one network or “2 or more such networks which are 

owned, controlled, or otherwise operated by” the same company. 

15 U.S.C. § 1693o-2(b)(1)(A)(i)-(ii) (emphasis added). Even 

though Congress used the word “which” to introduce this clause, 

the clause is clearly restrictive. A descriptive reading would 

require that the Board prevent issuers and networks from ever 

activating “one network” or “2 or more such networks.” In other 

words, a descriptive reading would prevent the activation of any

networks at all, rendering debit cards useless chunks of plastic. 

Cf. Barnhart v. Thomas, 540 U.S. 20, 24 (2003) (finding a 

restrictive clause in the statutory phrase “any other kind of 

substantial gainful work which exists in the national economy”). 

By contrast, in the Durbin Amendment Congress set aside every 

clearly descriptive clause with commas. See, e.g., 15 U.S.C. § 

1693o-2(a)(4)(B)(ii) (“other costs incurred by an issuer which 

are not specific to a particular electronic debit transaction, which

costs shall not be considered under paragraph (2)” (emphasis 

added)). 

The merchants also emphasize Congress’s use of the terms 

“distinguish between,” 15 U.S.C. § 1693o-2(a)(4)(B), and “other 

costs,” id. § 1693o-2(a)(4)(B)(ii). According to the merchants, 

the term “distinguish between” suggests that Congress required 

the Board to “differentiate [between] the two categories of 
23

costs,” and “the very use of the term ‘other costs’—as opposed 

to simply ‘costs’—indicates the entire universe of costs that is 

remaining after consideration of includable costs.” Appellees’ 

Br. 28. As noted above, these terms might provide some textual 

support for the merchants’ preferred reading of the statute. But 

given the Board’s reasonable determination that issuers incur 

costs, other than incremental ACS costs, that are “specific to a 

particular transaction,” the terms “distinguish between” and 

“other costs” hardly compel the conclusion that the Board must 

interpret section 920(a)(4)(B) as encompassing all costs that 

issuers incur. Imagine that you make a deal to hand over part of 

your baseball card collection and to distinguish between rookie 

cards, which you must hand over, and other cards less than five 

years old, which you must not. Although it would probably 

make little financial sense, you could certainly hand over a 1960 

Harmon Killebrew Topps card without violating the terms of the

deal. 

Next, the merchants assert that the Board, by inferring the 

existence of a third category of costs, improperly reads a 

delegation of authority into congressional silence. According to 

the merchants, “Congress would not delineate with specificity 

the characteristics of includable costs (e.g., incremental) if it 

intended, by its silence, to allow the Board to consider and 

include their opposite (e.g., nonincremental).” Appellees’ Br. 

31; accord American Petroleum Institute v. Environmental 

Protection Agency, 198 F.3d 275, 278 (D.C. Cir. 2000) (“[I]f 

Congress makes an explicit provision for apples, oranges and 

bananas, it is most unlikely to have meant grapefruit.”). But 

section 920(a)(3)(A) clearly grants the Board authority to 

promulgate regulations ensuring that interchange fees are 

reasonable and proportional to costs issuers incur. The question 

then is how section 920(a)(4)(B) limits the Board’s discretion to 

define the statutory term “cost incurred by the issuer with 
24

respect to the transaction,” not whether that section affirmatively 

grants the Board authority to allow issuers to recover certain 

costs. 

Finally, in a footnote the merchants point to section

920(a)(3)(B)’s requirement that the Board disclose certain ACS 

cost information and to section 920(a)(4)(A)’s requirement that 

the Board “consider the functional similarity between electronic 

debit transactions and checking transactions that are required 

within the Federal Reserve bank system to clear at par.” The 

district court relied heavily on these provisions, concluding that 

Congress’s decisions to limit disclosure “to the same costs 

specified in section (a)(4)(B)(i)” and to direct the Board to 

consider similarities, but not differences, between checks and 

debit cards support the merchants’ interpretation of the statute. 

NACS, 958 F. Supp. 2d at 103–04. But even assuming the 

disclosure provision mirrors section 920(a)(4)(B)(i)’s reference 

to incremental ACS costs—the word “incremental” appears 

nowhere in the disclosure provision—the statute also allows the 

Board to collect “such information as may be necessary to carry 

out the provisions of this section,” not just information about 

incremental ACS costs. 15 U.S.C. § 1693o-2(a)(3)(B). Similarly, 

Congress’s instruction to the Board to “consider the functional 

similarity between electronic debit transactions and checking 

transactions” hardly precludes the Board from considering 

differences as well. Doing just that, the Board decided that it 

could allow banks to recover some costs in the debit card 

context that they are unable to recover in the checking context.

Given the Durbin Amendment’s ambiguity as to the 

existence of a third category of costs, we must defer to the 

Board’s reasonable determination that the statute splits costs into 

three categories: (1) incremental ACS costs, which the Board 

must allow issuers to recover; (2) costs specific to a particular 
25

transaction, other than incremental ACS costs, which the Board 

may, but need not, allow issuers to recover; and (3) costs not 

specific to a particular transaction, which the Board may not

allow issuers to recover. See Chevron, 467 U.S. at 843 

(“Sometimes the legislative delegation to an agency on a 

particular question is implicit rather than explicit. In such a case, 

a court may not substitute its own construction of a statutory 

provision for a reasonable interpretation made by the 

administrator of an agency.”).

B.

Because the Board reasonably interpreted the Durbin 

Amendment as allowing issuers to recover some costs in 

addition to incremental ACS costs, we must now determine 

whether the Board reasonably concluded that issuers can recover 

the four specific types of costs the merchants challenge: “fixed” 

ACS costs, network processing fees, fraud losses, and 

transactions-monitoring costs. Much like agency ratemaking, 

determining whether issuers or merchants should bear certain 

costs is “far from an exact science and involves policy 

determinations in which the [Board] is acknowledged to have 

expertise.” Time Warner Entertainment Co. v. Federal 

Communications Commission, 56 F.3d 151, 163 (D.C. Cir. 

1995) (internal quotation marks omitted). We afford agencies 

special deference when they make these sorts of determinations. 

See, e.g., BNSF Railway Co. v. Surface Transportation Board, 

526 F.3d 770, 774 (D.C. Cir. 2008) (“In the rate-making area, 

our review is particularly deferential, as the Board is the expert 

body Congress has designated to weigh the many factors at issue 

when assessing whether a rate is just and reasonable.”); Time 

Warner, 56 F.3d at 163. With that caution in mind, we address 

each category of costs. 
26

“Fixed” ACS Costs

Microeconomics textbooks draw a clear distinction between 

“fixed” and “variable” costs: fixed costs are incurred regardless 

of transaction volume, whereas variable costs change as 

transaction volume increases. E.g., N. GREGORY MANKIW,

PRINCIPLES OF MICROECONOMICS 276–77 (3d ed. 2004). The 

merchants, noting that the statute precludes recovery of costs 

“not specific to a particular . . . transaction,” 15 U.S.C. § 1693o2(a)(4)(B)(ii), argue that the Board’s Final Rule improperly

allows recovery of fixed costs such as “equipment, hardware and 

software.” Appellees’ Br. 35. “By definition,” the merchants 

declare, “fixed costs are not ‘specific’ to any ‘particular’ 

transaction and fall squarely within the statute’s excludable costs 

provision.” Id. at 39. The merchants therefore urge us to require 

the Board to return to something along the lines of its proposed 

rule, under which merchants could only recover average variable 

ACS costs.

The merchants’ argument certainly has some persuasive 

power. One might think it a stretch if a shoe store claimed that 

the rent it pays its landlord is somehow “specific” to a 

“particular” shoe sale. But the merchants have never argued that 

issuers should be allowed to recover only costs incurred as a 

result of processing individual, isolated transactions. See NPRM, 

75 Fed. Reg. at 81,736 (requesting comment about whether 

“costs should be limited to the marginal cost of a transaction”); 

Final Rule, 76 Fed. Reg. at 43,427 n.118 (noting that “[t]he 

Board did not receive comments regarding the use of marginal 

cost”). Indeed, the Board’s proposed rule, which the merchants 

seem to endorse, would have allowed recovery of costs that are 

variable over the course of a year but could not be traced to any 

one particular transaction. 
27

We think the Board reasonably declined to read section

920(a)(4)(B) as preventing issuers from recovering “fixed” 

costs. As the Board pointed out, the distinction the merchants 

urge between what they refer to as non-includable “fixed” costs 

and includable “variable” costs depends entirely on whether, on 

an issuer-by-issuer basis, certain costs happen to vary based on 

transaction volume in a particular year. For example, in any 

given year one issuer might classify labor as an includable cost

because labor costs happened to vary based on transaction 

volume over that year, while another issuer might classify labor 

as a non-includable cost because such costs happened to remain 

fixed over that year. See Final Rule, 76 Fed. Reg. at 43,427. 

Moreover, the Board pointed out, the distinction between 

variable and fixed ACS costs depends in some instances on 

whether an issuer “performs its transactions processing inhouse” or “outsource[s] its debit card operations to a third-party 

processor that charge[s] issuers a per-transaction fee based on its 

entire cost.” Id. In any event, the Board concluded, requiring 

issuers to segregate includable “variable” costs from excludable

“fixed” costs on a year-by-year basis would prove “exceedingly 

difficult for issuers . . . [because] even if a clear line could be 

drawn between an issuer’s costs that are variable and those that 

are fixed, issuers’ cost-accounting systems are not generally set 

up to differentiate between fixed and variable costs.” Id. The 

Board therefore determined that any distinction between fixed 

and variable costs would prove artificial and unworkable.

Instead, pointing out that the statute requires interchange 

fees to be “reasonable and proportional” to issuer costs, the 

Board interpreted section 920(a)(4)(B) as allowing issuers to 

recover costs they must incur in order to effectuate particular 

electronic debit card transactions but precluding them from 

recovering other costs too remote from the processing of actual 

transactions. “This reading interpret[s] costs that ‘are not 
28

specific to a particular electronic debit transaction,’ and . . . 

cannot be considered by the Board, to mean those costs that are 

not incurred in the course of effecting any electronic debit 

transaction.” Id. at 43,426. In our view, the Board reasonably

distinguished between costs issuers could recover and those they

could not recover on the basis of whether those costs are

“incurred in the course of effecting” transactions. Id. For 

instance, the Board’s rule allows issuers to recover equipment, 

hardware, software, and labor costs since “[e]ach transaction 

uses the equipment, hardware, software and associated labor, 

and no particular transaction can occur without incurring these 

costs.” Id. at 43,430. By contrast, the rule precludesissuers from

recovering the costs of producing and distributing debit cards

because “an issuer’s card production and delivery costs . . . are 

incurred without regard to whether, how often, or in what way 

an electronic debit transaction will occur.” Id. at 43,428. Given 

the Board’s expertise, we see no basis for upsetting its 

reasonable line-drawing. See ExxonMobil Gas Marketing Co. v. 

Federal Energy Regulatory Commission, 297 F.3d 1071, 1085 

(D.C. Cir. 2002) (“We are generally unwilling to review linedrawing . . . unless a petitioner can demonstrate that lines drawn 

. . . are patently unreasonable, having no relationship to the 

underlying regulatory problem.” (internal quotation marks 

omitted)).

Network Processing Fees

This is easy. Network processing fees, which issuers pay on 

a per-transaction basis, are obviously specific to particular 

transactions. The merchants argue that allowing issuers to 

recover network processing fees through the interchange fee 

would run afoul of section 920(a)(8)(B), which requires the 

Board to ensure that “a network fee is not used to directly or 

indirectly compensate an issuer with respect to an electronic 
29

debit transaction.” Perhaps signaling that even the merchants are 

not entirely confident about this argument, they present it only in 

a footnote. The merchantsshould have left it out entirely. As the 

Board points out, section 920(a)(8)(B) is designed to prevent 

issuers and networks from circumventing the Board’s 

interchange fee rules, not to prevent issuers from recovering

reasonable network processing fees through the interchange fee. 

Final Rule, 76 Fed. Reg. at 43,442 (“[Section 920(a)(8)(B)] 

authorizes the Board to prescribe rules to prevent circumvention 

or evasion of the interchange transaction fee standards.”).

Fraud Losses

The merchants nowhere challenge the Board’s conclusion 

that fraud losses, which result from the settlement of particular 

fraudulent transactions, are specific to those transactions. The 

only question is whether a separate provision of the Durbin 

Amendment—section 920(a)(5)’s fraud-prevention adjustment, 

which allows issuers to recover fraud-prevention costs if those 

issuers comply with the Board’s fraud-prevention standards—

precludes the Board from allowing issuers to recover fraud 

losses as part of section 920(a)(2)’s “reasonable and 

proportional” interchange fee. The merchants claim that it does. 

First, noting that Congress intended the fraud-prevention 

adjustment to be the only “fraud-related adjustment of the 

issuer,” 15 U.S.C. § 1693o-2(a)(5)(A)(ii)(I), the merchants argue 

that the Board should have allowed issuers to recover fraudrelated costs only through the fraud-prevention adjustment. We 

disagree. The Board determined—reasonably in our view—that 

because fraud losses result from the failure of fraud-prevention, 

they do not themselves qualify as fraud-prevention costs. See 

Final Rule, 76 Fed. Reg. at 43,431 (“An issuer may experience 

losses for fraud that it cannot prevent and cannot charge back to 

the acquirer or recoup from the cardholder.”). And nothing in the
30

statute suggests that Congress used the word “adjustment” to 

describe the process of determining which costs issuers should 

be allowed to recover directly through the interchange fee.

Rather, when discussing the fraud-prevention adjustment, 

Congress empowered the Board to “allow for an adjustment to 

the fee amount received or charged by an issuer under paragraph 

(2).” 15 U.S.C. § 1693o-2(a)(5)(A). Paragraph (2), in turn, 

requires that the interchange fee be “reasonable and 

proportional” to costs incurred by issuers. Id. § 1693o-2(a)(2). 

Thus, Congress used the word “adjustment” to describe a bonus 

over and above the “reasonable and proportional” interchange 

fee. 

The merchants next maintain that allowing issuers to 

recover fraud losses through the interchange fee “irrespective of 

any particular bank’s efforts to reduce fraud” would undermine

Congress’s decision to condition receipt of the fraud-prevention 

adjustment on compliance with the Board’s fraud-prevention 

standards. Appellees’ Br. 43. Even assuming the merchants’ 

policy argument has some merit—allowing recovery of fraud 

losses regardless of compliance with fraud-prevention standards 

might well decrease issuers’ incentives to invest in fraud 

prevention—the Board rejected it, reasoning that “[i]ssuers will 

continue to bear the cost of some fraud losses and cardholders 

will continue to demand protection against fraud.” Final Rule, 

76 Fed. Reg. at 43,431. Such policy judgments are the province 

of the Board, not this Court. See Village of Barrington, Illinois

v. Surface Transportation Board, 636 F.3d 650, 666 (D.C. Cir. 

2011) (“As long as the agency stays within [Congress’s]

delegation, it is free to make policy choices in interpreting the 

statute, and such interpretations are entitled to deference.”

(internal quotation marks omitted) (alterations in original)).
31

Transactions-Monitoring Costs

The Board acknowledged in the Final Rule that 

transactions-monitoring costs, unlike fraud losses, are the 

paradigmatic example of fraud-prevention costs. Final Rule, 76 

Fed. Reg. at 43,397 (“The most commonly reported fraud 

prevention activity was transaction monitoring.”). The Board 

then distinguished between “[t]ransactions monitoring systems 

[that] assist in the authorization process by providing 

information to the issuer before the issuer decides to approve or 

decline the transaction,” which the Board placed outside the 

fraud-prevention adjustment, and “fraud-prevention activities . . 

. that prevent fraud with respect to transactions at times other 

than when the issuer is effecting the transaction”—for instance 

the cost of sending “cardholder alerts . . . inquir[ing] about 

suspicious activity”—which the Board determined should be 

“considered in connection with the fraud-prevention 

adjustment.” Id. at 43,430–31. Challenging this distinction, the 

merchants think it “preposterous to suggest that Congress would 

specifically addressthe costs associated with fraud prevention in 

a separate provision of the statute, condition the recovery of 

those costs on an issuer’s compliance with fraud prevention 

measures, and then . . . permit recovery of those very same 

costs” whether or not an issuer complies with fraud-prevention 

standards. Appellees’ Br. 41.

As an initial matter, we agree with the Board that 

transactions-monitoring costs can reasonably qualify both as 

costs “specific to a particular . . . transaction” (section 

920(a)(4)(B)) and as fraud-prevention costs (section 920(a)(5)). 

Thus, the Board may have discretion either to allow issuers to 

recover transactions-monitoring costs through the interchange 

fee regardless of compliance with fraud-prevention standards or 

to preclude issuers from recovering transactions-monitoring 
32

costs unless those issuers comply with fraud-prevention 

standards. That said, “an agency must cogently explain why it 

has exercised its discretion in a given manner.” Motor Vehicle 

Manufacturers Association of the United States v. State Farm 

Mutual Automobile Insurance Co., 463 U.S. 29, 48 (1983). We 

agree with the merchants that the Board has fallen short of that

standard. 

The Board insiststhat the distinction it drew between fraudprevention costs falling outside the fraud-prevention adjustment 

and fraud-prevention costs falling within it reflects the

distinction between, on the one hand, section 920(a)(4)(B)’s 

focus on a single transaction and, on the other, section

920(a)(5)(A)(i)’s focus on “electronic debit transactions

involving that issuer.” According to the Board, Congress 

“intended the . . . fraud-prevention adjustment to take into 

account an issuer’s fraud prevention costs over a broad spectrum 

of transactions that are not linked to a particular transaction.” 

Appellant’s Br. 66–67. But as noted above, the Board 

interpreted the term “specific to a particular . . . transaction” as 

in fact allowing recovery of many costs not literally “specific” to 

any one “particular” transaction. See supra at 26–28. The costs 

of hardware, software, and labor seem no more “specific” to one 

“particular” transaction than many of the fraud-prevention costs 

the Board determined fall within the fraud prevention 

adjustment. The Board’s own interpretation of the statute thus

undermines its justification for concluding that Congress 

established a fraud-prevention adjustment, conditioned receipt of

that adjustment on compliance with fraud-prevention standards, 

yet allowed issuers to recover the paradigmatic example of 

fraud-prevention costs—transactions-monitoring costs—whether 

or not issuers comply with those standards.
33

All that said, the Board may well be able to articulate a 

reasonable justification for determining that transactionsmonitoring costs properly fall outside the fraud-prevention 

adjustment. But the Board has yet to do so. “If the record before 

the agency does not support the agency action, if the agency has 

not considered all relevant factors, or if the reviewing court 

simply cannot evaluate the challenged agency action on the 

basis of the record before it, the proper course, except in rare 

circumstances, is to remand to the agency for additional 

investigation or explanation.” Florida Power & Light Co. v. 

Lorion, 470 U.S. 729, 744 (1985) (emphasis added). We shall do 

so here. Because the interchange fee rule generally rests on a 

reasonable interpretation of the statute, because the Board may 

well be able to articulate a sufficient explanation for its 

treatment of fraud-prevention costs, and because vacatur of the 

rule would be disruptive—the merchants seek an even lower 

interchange fee cap, but vacating the Board’s rule would lead to 

an entirely unregulated market, allowing the average interchange 

fee to once again reach or exceed 44 cents per transaction—we 

see no need to vacate. See Heartland Regional Medical Center 

v. Sebelius, 566 F.3d 193, 198 (D.C. Cir. 2009) (noting that 

remand without vacatur is warranted “[w]hen an agency may be 

able readily to cure a defect in its explanation of a decision” and 

the “disruptive effect of vacatur” is high); see also, e.g., 

Environmental Defense Fund v. Environmental Protection 

Agency, 898 F.2d 183, 190 (D.C. Cir. 1990) (instructing that 

courts should ordinarily remand without vacatur when vacatur

would “at least temporarily defeat” the interests of the party 

successfully seeking remand).

III.

Having resolved the merchants’ challenges to the 

interchange fee rule, we turn to the anti-exclusivity rule. As 

explained above, see supra at 9, section 920(b) requires the 
34

Board to promulgate regulations preventing “an issuer or 

payment card network” from “restrict[ing] the number of 

payment card networks on which an electronic debit transaction 

may be processed” to a single network, or to networks affiliated 

with one another. In the proposed rule, the Board outlined two 

alternatives: require issuers and networks to activate two 

unaffiliated networks or two unaffiliated networks for each 

method of authentication. In the Final Rule, the Board chose the 

former, requiring activation of two unaffiliated networks on each 

debit card regardless of method of authentication. 

The merchants believe that the Durbin Amendment

unambiguously requires that all merchants have multiple 

unaffiliated network routing options for each debit transaction.

See NACS, 958 F. Supp. 2d at 109–12 (accepting this argument). 

Arguing that the Board’s rule flunks this requirement, the 

merchants emphasize two undisputed facts. First, given that 

most merchants refuse to accept PIN debit, many transactions 

can currently be processed only on signature debit. Second, 

cardholders, not merchants, often have the ability to select 

whether to process transactions on signature networks or PIN 

networks. As a result, the merchants emphasize, under the 

Board’s rule many merchants will still lack the ability to choose 

between unaffiliated networks when deciding how to process 

particular transactions. Disputing none of this, the Board points

out that all merchants could accept PIN debit even if some 

choose not to and emphasizes that the statute is silent about 

“restrictions imposed by merchants or consumers that limit 

routing choice.” Appellant’s Br. 22. Given the parties’

agreement that under the Board’s rule some merchants will lack 

routing choice for particular transactions, we must determine 

whether the statute requires that all merchants—even those who 

voluntarily choose not to accept PIN debit—have the ability to 

decide between unaffiliated networks when routing transactions. 
35

The merchants have a steep hill to climb. Congress directed

the Board to issue rules that would accomplish a particular 

objective, leaving it to the Board to decide how best to do so, 

and the Board’s rule seems to comply perfectly with Congress’s 

command. Under the rule, “issuer[s] and payment card 

network[s]” cannot “restrict the number of payment card 

networks on which an electronic debit transaction may be 

processed” to only affiliated networks—exactly what the statute 

requires. 15 U.S.C. § 1693o-2(b)(1)(A). 

Undaunted, the merchants emphasize one largely 

conclusory textual argument and allude to another. First, relying 

on the statutory phrase “electronic debit transaction,” id. § 

1693o-2(b)(1)(A), theymaintain that the statute plainly “requires 

the Board to ensure that merchants be afforded a choice of 

networks for each debit transaction.” Appellees’ Br. 45. But 

context matters. Relying on the statute’s reference to “issuer[s]

and payment card network[s],” the Board reasonably read the

“electronic debit transactions” phrase to prevent issuers and 

networks, prior to instigation of any particular debit transaction, 

from limiting the number of networks “on which an electronic 

debit transaction may be processed” to only affiliated networks. 

15 U.S.C. § 1693o-2(b)(1)(A) (emphasis added). 

In a footnote, the merchants repeat, though they seem not to 

embrace, a textual argument on which the district court relied. 

Looking to the statutory definitions of “electronic debit 

transaction” (“a transaction in which a person uses a debit card”) 

and of “debit card” (“any card . . . issued or approved for use 

through a payment card network to debit an asset account . . . 

whether authorization is based on signature, PIN, or other 

means”), id. § 1693o-2(c)(2), (c)(5), the district court ruled that 

the statutory term “electronic debit transaction” requires that 

issuers and networks activate multiple unaffiliated networks for 
36

each transaction “whether authorization is based on signature, 

PIN, or other means,” NACS, 958 F. Supp. 2d at 110–11. But we 

think it quite implausible that Congress engaged in a high-stakes 

game of hide-and-seek with the Board, writing a provision that 

seems to require one thing but embedding a substantially 

different and, according to financial services amici, much more

costly requirement in the statute’s definitions section. Cf.

Whitman v. American Trucking Association, 531 U.S. 457, 468 

(2001) (“Congress . . . does not . . . hide elephants in 

mouseholes.”).

The merchants also argue that the Board’s rule runs afoul of

the Durbin Amendment’s purpose. Pointing out that Congress 

intended network competition to drive down network processing

fees, the merchants insist that the Board has undermined this 

competitive market because “merchants will be deprived of 

network choice for a substantial segment of debit transactions in 

the marketplace today.” Appellees’ Br. 47. But the Board 

thought differently. As it explained in the Final Rule,

“merchants that currently accept PIN debit would have routing 

choice with respect to PIN debit transactions in many cases 

where an issuer chooses to participate in multiple PIN debit 

networks.” Final Rule, 76 Fed. Reg. at 43,448. Indeed, the Board 

presents uncontested evidence demonstrating that its rule has, as 

predicted, substantially increased network competition. 

According to the Board, as a result of the rule over 100 million 

debit cards were activated on new networks, and “[Visa], which 

had previously accounted for approximately 50-60% of the [PIN 

debit] market, lost roughly half that share.” Appellant’s Br. 37 & 

n.6 (internal quotation marks omitted).

Of course, as the Board acknowledges, the merchants’ 

preferred rule would result in more competition. But in its Final

Rule the Board explained the policy considerations that led it to 
37

reject that approach. For one thing, cardholders might prefer to 

route transactions over certain networks, perhaps because they 

believe those networks to have better fraud-prevention policies. 

Final Rule, 76 Fed. Reg. at 43,447–48. Also, the merchants’ 

preferred rule “could potentially limit the development and 

introduction of new authentication methods” since issuers would 

be unable to compel merchants to accept new authentication 

techniques. Final Rule, 76 Fed. Reg. at 43,448. The merchants 

ignore these reasonable concerns. Given that the Board’s rule 

advances the Durbin Amendment’s purpose, we decline to 

second-guess its reasoned decision to reject an alternative option 

that might have further advanced that purpose. 

Next, the merchants emphasize the interaction between 

section 920(b)’s two key components: the anti-exclusivity and 

routing priority provisions. According to the merchants, the 

Board’s anti-exclusivity rule renders the routing priority 

provision meaningless, since merchants will often lack the 

ability to choose between multiple unaffiliated routing options. 

But as the Board points out, the merchants misunderstand the 

routing priority provision. Recall that it prohibits issuers and 

networks from requiring merchants to process transactions over 

certain activated networks rather than others. Far from rendering 

the routing priority provision a nullity, the Board’s antiexclusivity provision would be ineffective without it. Absent the 

routing priority provision, issuers and networks could, for 

instance, activate two PIN networks and a signature network 

affiliated with one of the PIN networks and then require 

merchants to route transactions over the PIN network affiliated 

with the signature network rather than over the other PIN 

network.

Finally, the merchants question the Board’s premise that it 

is they, not issuers and networks, who restrict routing options for 
38

transactions under the Board’s Final Rule. To this end, they 

assert that issuer and network rules arbitrarily prevent merchants 

from processing PIN transactions on signature networks and vice 

versa, suggesting that the Board could comply with the statute 

by eliminating the distinction between PIN and signature debit. 

But even if issuers and networks are responsible for maintaining 

this distinction—a point they strongly dispute—merchants, not 

issuers or networks, limit their own options when they refuse to 

accept PIN debit, and cardholders, not issuers or networks, limit 

merchants’ options when given the ability to choose how to 

process transactions. “The principal fallacy with the Merchants’ 

argument,” the Board aptly explains, “is that they selectively 

view transactions only from their own perspective and only after 

the point at which the merchant itself or the consumer may have 

elected to restrict certain routing options,” whereas “section 

920(b) speaks only in terms of issuer and payment card network 

restrictions” imposed prior to initiation of any particular debit 

card transaction. Reply Br. 2–3.

In sum, far from summiting the steep hill, the merchants 

have barely left basecamp. We therefore defer to the Board’s 

reasonable interpretation of section 920(b) and reject the 

merchants’ challenges to the anti-exclusivity rule. 

IV.

For the foregoing reasons, we reverse the district court’s 

grant of summary judgment to the merchants and remand for 

further proceedings consistent with this opinion. 

So ordered.