UNITED STATES DISTRICT COURT FORTHE DISTRICT OF COLUMBIA NACS; NATIONAL RETAIL FEDERATION; FOOD MARKETING INSTITUTE; MILLER OIL CO.; BOSCOV'SDEPARTMENT STORE, LLC; and NATIONALRESTAURANT ASSOCIATION, Plaintiffs,


### v. BOARD OF GOVERNORS OFTHE FEDERALRESERVE SYSTEM, Defendant.

### ~- ) ) ) ) ) ) ) ) Civil Case No. 11-02075 (RJL) ) ) ) ) ) ) )

MEMORANDUM OPINION**July~'** 2013 [Dkts. ##20, 23] Plaintiffs NACS (formerly, the National Association ofConvenience Stores), National Retail Federation ("NRF"), Food Marketing Institute ("FMI"), Miller Oil Co., Inc. ("Miller"), Boscov'sDepartment Store, LLC ("Boscov's) and National Restaurant Association ("NRA") (collectively, "plaintiffs") bring this action against the Board of Governors ofthe Federal Reserve System ("defendant" or "the Board") to overturn the Board'sFinal Rule setting standards for debit card interchange transaction fees ("interchange fees") and network exclusivity prohibitions. Beforethe Court are the parties' cross-motions for summaryjudgment [Dkts. ##20, 23]. Upon consideration of the pleadings, oral argument, and the entire record therein, the Court concludes that the Board has clearly disregarded Congress's statutory intentby inappropriately inflating all 1debit card transaction fees by billions ofdollars and failing to provide merchants with multiple unaffiliated networks for each debit card transaction. Accordingly, the plaintiffs' motion is 

### GRANTED and defendant's motion is 

### DENIED. FACTUAL BACKGROUND Four ofthe sixplaintiffs in this case are majortrade associations in the retail industry. NACS is an international trade association comprised ofmore than 2,100 retail members and 1,600 supplier members in the convenience store industry, most located in the United States. Am. Compl. , 15 [Dkt. #18]. NRF is "theworld's largest retail trade association," representing department, specialty, discount, catalog, Internet, and independent stores, as well as chainrestaurants, drug stores, and grocery stores in over 45 countries. !d. , 17. FMI advocates for 1,500 food retailers and wholesalers, including large multi-store chains, regional firms, and independent supermarkets. 

### !d., 19. NRA is the "leading national association representingth[e] [restaurant and food-service] industry, and its members account for over one-third ofthe industry's retail locations." !d. , 23. According to plaintiffs, these trade associations and their members accept debit card payments and therefore are directly affected by the Board's interchange fee and network non-exclusivity regulations. !d. ,, 16, 18, 20, 23-25. The remainingplaintiffs are individual retail operations. Miller is a convenience store and gasoline retailerthat also sells heating oil, heating and air-conditioning service, and commercial and wholesale fuels in the United States. 

### !d. , 21. Boscov's is an instore and online retailer with a chain offorty full-service department stores located in five states in the mid-Atlantic region. !d. , 22. Both accept debit cards. See id. ,,21-22. 2The Board is a federal government agency responsible for the operation ofthe Federal Reserve System and promulgation ofournation's bankingregulations.**!d.~** 26. 

### I. Debit Cards and Networks Although now ubiquitous, debit cards were first introduced as a form ofpayment in the United States in only the late-1960s and early-1970s. See Final Rule, Debit Card andInterchange Fees andRouting, 76 Fed. Reg. 43,394, 43,395 (July 20, 2011) (codified at 12 C.F.R. §§ 235.1-235.10) ("Final Rule"). Unlike otherpayment options, debit cards allow consumers topay for goods and services at thepoint ofsale using cash drawn directly from theirbank accounts, and to withdraw and receive cash back as part ofthe transaction. 

### !d. Priorto debit cards, consumers hadto usepaperchecks ormake inpersonwithdrawals from human banktellers in orderto access their accounts. 

### !d. After decades ofslow growth, the volume ofdebit card transactions increased rapidly in the mid-1990s, as did transactions involving other forms ofelectronic payment such as credit cards. 

### !d. at 43,395 & n.5. This upsurge in debit cardusage continued into the 2000s, reaching approximately 37.9 billion transactions in 2009. 

### !d. at 43,395. By 2011, debit cards were "used in 3 5percent ofnoncashpaymenttransactions, and have eclipsed checks as the most frequently used noncashpayment method." 

### !d. Most debit card transactions involve four parties, in addition to the networkthat processes the transaction. 

### !d. at 43,395 & n.l4. These parties are: (1) the cardholder (or consumer), who provides the debit card as a method ofpaymentto a merchant; (2) the issuer (or issuing bank), which holds the consumer's account and issues the debit cardto the consumer; (3)the merchant, who accepts the consumer's debit card as a method of 

### 3payment; and (4) the acquirer (or acquiring bank), which receives the debit card transaction information from the merchant and facilitates the authorization, clearance, and settlement ofthe transaction on behalfofthe merchant. !d. at 43,395-96. The network provides the software and infrastructure needed to route debit transactions; it transmits consumer account information and electronic authorization requests from the acquirer to the issuer; and it returns a message to the acquirer either authorizing or declining the transaction. See 15 U.S.C. § 1693o-2(c)(l1) (defining "payment card network"); 76 Fed. Reg. at 43,396. In addition, "[b]ased on all clearing messages received in one day, the network calculates and communicates to each issuer and acquirer its net debit

...position for settlement." 76 Fed. Reg. at 43,396. There are two types ofdebit card transactions-PIN (or "personal identification number") and signature-each ofwhich requires its own infrastructure. In a PIN transaction, the consumer enters a number to authorize the transaction, and the data is carried in a single message over a system evolved from automated teller machine ("ATM") networks. !d. at 43,395. In a signature transaction, the consumer authenticates the transaction by signing something (like areceipt), and the data is routed over a dualmessage system utilizing credit card networks. !d. 1 "Increasingly, however, cardholders authorize 'signature' debit transactions without a signature and, sometimes, may authorize a 'PIN' debit transaction without a PIN." 76 Fed. Reg. at 43,395 & n.lO.

1See also Steven C. Salop et al., EconomicAnalysis of Debit CardRegulation Under Section 920**~** 20 (Oct. 27, 2010) [Dkt. #33] (Joint Appendix 0332-0460) ("Salop"). 

### 4The vast majority ofdebit cards (excluding prepaid cards) support authentication by both PIN and signature, butwhich one is used in a given transaction depends in large part on the nature ofthe transaction and the merchant's acceptance policy. !d. at 43,395. For instance, hotel stays and car rentals are not easily processed on PIN-based systems because the transaction amount is unknown at the time ofauthorization. !d. Internet, telephone, and mail-based merchants also generally do not accept PIN transactions. !d. Ofthe eight million merchants in the United States that accept debit cards, the Board estimates that only one-quarterhave the ability to accept PIN transactions. !d. 

### II. Debit Card Fees There are several fees associated with debit card transactions. The largest is the interchange fee, which is set by the network and paid by the acquirerto the issuerto compensate the latter for its role in the transaction. !d. at 43,396; see also § 1693o2(c)(8) (defining "interchangetransaction fee"). The network also charges acquirers and issuers a switch fee to cover its owntransaction-processing costs. 76 Fed. Reg. at 43,396; see also§ 1693o-2(c)(l0) (defining "network fee"). Once these fees are assessed, the acquirer credits the merchant's account for the value ofits transactions, less

a "merchant discount," which includes the interchange fee, network switch fees charged to the acquirer, other acquirer costs, and a markup. 76 Fed. Reg. at 43,396.

5When PIN debit cards were first introduced, most regional networks set their interchange rates at "par," offering no cost subsidization to either merchants or issuers.2 Some networks, however, implemented "reverse" interchange fees, which issuers paid to acquirers to offsetthe costto merchants ofinstallingterminals and other infrastructure needed to accept PIN at the point ofsale. 76 Fed. Reg. at 43,396; Salop, supra note 1,**~** 21; Mott, supra note 2,**~** 7. Becausethis model eliminated the costs associated with paper checks and human banktellers, issuers could provide debit services at aprofit, even without collecting interchange fees. 3 Furthermore, issuers touted the convenience of PIN-debitto their customers, and customers in tum maintained higher account balances, which issuers could loan out at aprofit. Mott, supra note 2,**~** 3. As debit cards became more popular, interchange fee rates and the direction in which the fees flowed began to shift. See 76 Fed. Reg. at 43,396. By the early-2000s, acquirers werepaying issuers ever-increasing interchange fees for PIN transactions. See id. Interchange fees for signature transactions, meanwhile, were modeled on credit card fees and were even higherthan for PIN. I d.; Salop, supra note 1,**~** 23. In recent years, interchange fees have climbed sharply with PIN outpacing signature debit fees. From 1998 to 2006, merchants faced a 234 percent increase in interchange fees for PIN transactions, Mott, supra note 2,**~** 24, and by 2009, interchange

2 Stephen Craig Mott, Industry Facts ConcerningDebit CardRegulation Under Section 920**~** 7 (Oct. 27, 2010) [Dkt. #33] (Joint Appendix 0292-0331) ("Mott"); Salop, supra note 1,**~** 21. 3 Merchants Payments Coalition ("MPC"), Comments in Response to Notice of Proposed Rulemaking on Debit CardInterchange Fees andRouting at 1(Feb. 22, 2011) [Dkt. #33] (JointAppendix 0149-0238) ("MPC Comments"); Salop, supra note 1,**~** 21. 6fee revenue for debit cards totaled $16.2 billion, 76 Fed. Reg. at 43,396. Formost retailers, debit card fees represent the single largest operating expense behind payroll.4 Because debit card transaction fees, including interchange fees, are setbythe relevant network andpaid by the acquirer (on behalfofmerchants) to the issuer, perhaps the best way to understand why such fees have skyrocketed overthe past two decades is to recognize the market dynamics among the networks, issuers, and merchants. Although there are many debit card networks in the United States, networks under Visa's and MasterCard's ownership account for roughly 83 percent ofall debit transactions and nearly 100 percent ofsignature transactions.5 Visa also owns Interlink, the largest PIN network.6 Due to their hefty market share, Visa and MasterCard exercise considerable marketpowerovermerchants with respect to debit card acceptance. See Salop, supra note 1,**~** 35. Hundreds ofmillions ofconsumers use cards that operate on Visa's and MasterCard's debit networks. !d.**~** 36. Merchants know that ifthey do not accept those cards and networks, they risk losing sales, and "losingthe sale would be costlierto the merchantthan accepting debit and paying the high interchange fee." !d. Atthe same time, Visa, MasterCard, and other debit networks vie for issuers to issue cards that run on theirrespective networks. !d.**~~** 33, 43. They can entice issuers

4 NACS, Comments in Response to Notice of ProposedRulemakingon Debit Card Interchange Fees andRouting at 1 (Feb. 22, 2011) [Dkt. #33] (Joint Appendix 0239- 0248) ("NACS Comments"). 5 Salop, supra note 1,**~** 26; SenatorRichard J. Durbin, Comments in Response to Notice of ProposedRulemakingonDebit CardInterchange Fees andRouting at 1 (Feb. 22, 2011) [Dkt. #33] (Joint Appendix 0125-0140) ("Durbin Comments"). 6 Salop, supra note 1,**~** 26. Today, there are approximately 15 PIN debit networks, the largest ofwhich are Interlink (owned by Visa), Star (owned by First DataCorp.), PULSE (ownedby Discover), andNYCE (owned byFIS). !d.**~** 22. 7by emphasizing their relative market power and ability to set interchange and other fees. /d.; see also 76 Fed. Reg. at 43,396. Networks thus have an incentive to continuously raise merchants' interchange fees-which, again, flow from merchants to issuers-as a way to attract issuers to the network.7 Visa, for instance, more than tripled the Interlink interchange fee since the early-1990s, forcing small competitor PIN networks to increase their fees as well. Mott, supra note 2,**~~** 23-24; Salop, supra note 1,**~~** 40, 46. Within each network, issuers all receive the same interchange fee, regardless oftheir efficiency in processing transactions ortheir efforts to prevent fraud. See Durbin Comments, supra note 5, at 5, 9. In addition, Visa's and MasterCard's "HonorAll Cards" rules force merchants that accepttheir networks' ubiquitous credit cards also to accept their signature debit cards with their corresponding high signature transactions fees. 8 As apractical matter, then, merchants cannotputdownwardpressure on interchange fees by rejecting networkaffiliated debit cards. Durbin Comments, supra note 5, at 2, 5. And issuers have implemented reward programs, special promotions, and penalty fees to encourage debit

7 Salop, supra note 1,**~~** 34, 44; see also id.**~** 49 ("When debit networks raise their interchange fee, they gain issuance and cardholders, but they do not lose merchant acceptance."); Durbin Comments, supra note 5, at 5 ("[C]ompetition between networks does not lead to downwardpressure on interchange rates because networks compete to attract issuers and do so by raising interchange fees."); MPC Comments, supra note 3, at 1("As banks became accustomed to receiving high interchange rates ...which bore no relationship to costs ... a dynamic ofmerchants being forced to pay ever-increasing interchange rates to underwrite network competition for issuers became the norm for the industry."). 8Mott, supra note 2,**~** 13; MPC Comments, supra note 3, at 1; NRF, Comments in Response to Notice of ProposedRulemakingon Debit CardInterchange Fees and Routing at 4 (Feb. 22, 2011) [Dkt. #33] (Joint Appendix 0249-0256) ("NRF Comments"). 8(especially signature-debit) usage. Mott, supra note 2, ,-r,-r 16-18; Salop, supra note 1, ,-r 47. Merchants have responded by raising the price ofgoods and services to offset the fees. See Durbin Comments, supra note 5, at 5, 9; NRF Comments, supra note 8, at 5. The major card networks, not surprisingly, have also increased their own network fees, facilitated inpartby exclusivity deals betweenthe leading networks and debit issuers. Mott, supra note 2, ,-r,-r 26-27; Salop, supra note 1, ,-r,-r 30-31. Although there has been some network competition for PINtransactions, Visa and MasterCard have longstanding operating rules that disallow any other network from handling signature transactions on their cards. 76 Fed. Reg. at43,396; Mott, supra note 2, ,-r,-r 26-27; Salop, supra note 1, ,-r,-r 30-31. Within the PINmarket, too, Visa has agreements withparticular issuers that create exclusivity via "volume commitments that are peggedto incentives such as reduced fees" orrequire that Interlink be their sole PIN debit network. Salop, supra note 1, ,-r 30. Thus, the dominant networks have been able to raise theirnetwork fees on merchants without concern for lost transaction volume because merchants have

no other alternatives for routing transactions. !d. ,-r 31. According to information collectedby the Board, total network fees exceeded $4.1 billion in 2009, with networks charging issuers and acquirers more than $2.3 billion and $1.8 billion, respectively. 76 Fed. Reg. at43,397. 

### III. The Durbin Amendment OnJuly 21, 2010, Congresspassed legislation to address the rise ofdebit card fees. Coinedthe "DurbinAmendment" after its sponsor, Illinois SenatorRichard J. Durbin, the legislation seeks to implement Section 920 ofthe Electronic FundTransfer 9Act ("EFTA"), 15 U.S.C. § 1693o-2, as enacted by Section 1075 oftheDodd-Frank Wall StreetReform and ConsumerProtection Act ("Dodd-FrankAct"), Pub. L. No. 111-203, 124 Stat. 1376, 2068-2074 (2010). The Durbin Amendment imposes various standards and rules governing debit fees and transactions. See id.; 76 Fed. Reg. at 43,394. The regulations apply only to issuers with assets exceeding $10 billion. § 1693o-2(a)(6)(A). 

### A. Interchange Fees The Durbin Amendment first addresses interchange transaction fees, which are defined as "any fee established, charged orreceived by apayment card network for the purpose ofcompensating an issuer for its involvement in an electronic debit transaction." § 1693o-2(c)(8). Itprovides that the fee charged by the issuer "with respect to an electronic debit transaction shall be reasonable andproportionalto the cost incurred by the issuer with respectto the transaction." !d. § 1693o-2(a)(2) (emphasis added). Itthen directs the Board to establish standards to determine whetherthe amount ofa debit card interchange fee is "reasonable and proportional to the cost incurred by the issuer" with respect to the transaction. !d. § 1693o-2(a)(3)(A). To promulgate these standards, Congress instructs the Boardthat it: shall- (A) considerthe functional similarity between- (i) electronic debit transactions; and (ii) checking transactions that are required within the Federal Reserve bank system to clear at par; [and] (B) distinguish between10(i) the incremental cost incurred by an issuer for the role ofthe issuer in the authorization, clearance, or settlement ofa particular electronic debit transaction, which cost shall be considered under[§ 1693o-2(a)(2)]; and (ii) other costs incurred by an issuer which are not specific to a particular electronic debit transaction, which costs shall not be considered under[§ 1693o-2(a)(2)] !d. § 1693o-2(a)(4)(A)-(B). Once the Board establishes this interchange transaction fee standard, Congress authorizes the Boardto adjust the fee to allow for fraud-prevention costs, provided the issuer complies with standards established by the Boardrelating to fraud prevention: (5) Adjustmentto interchange transaction fees for fraud prevention costs (A) Adjustments. The Board may allow for an adjustment to the fee amount received orcharged by an issuer under[§ 1693o-2(a)(2)], if- (i) such adjustment is reasonably necessary to make allowance for costs incurred by the issuer in preventing fraud in relation to electronic debit transactions involving that issuer; and (ii) the issuer complies with the fraud-related standards established by the Boardunder[§ 1693o-2(a)(5)(B)], which standards shall- (I) be designed to ensure that any fraud-related adjustment ofthe issuer is limited to the amount described in clause (i) and takes into account any fraud-related reimbursements (including amounts from charge-backs) received from consumers, merchants, or payment card networks in relation to electronic debit transactions involvingthe issuer; and (II) require issuers to take effective steps to reduce the occurrence of, and costs from, fraud in relation to electronic debit transactions, including through the 11

### !d. § 1693o-2(a)(5)(A).9 development and implementation ofcost-effective fraud prevention technology.



### B. Network Regulation The Durbin Amendment also instructs the Boardto regulate network fees by prescribing rules relatedto network non-exclusivity for routing debit transactions. 76 Fed. Reg. at 43,394. Preferring a market-oriented approach to network fees, 10 the Durbin Amendmentprovides that the Board may regulate such fees only as necessary to ensure thatthey are notusedto "directly orindirectly compensate an issuerwith respect to an electronic debittransaction" or "circumvent or evade the restrictions

... and regulations" prescribedbythe Boardunderthis subsection. § 1693o-2(a)(8)(B)(i)-{ii). Atthe same time, the Amendmentrequires the Boardto adoptrules thatprohibit issuers and networks from entering into exclusivity arrangements or imposingrestrictions on the networks through which merchants may route atransaction. Specifically, Congress directs the Boardto promulgateregulations providing that issuers and networks "shall not directly or through any agent ...restrict the number ofpayment card networks11 on which an

9 This fraud-prevention cost adjustment was the subject ofa separate rulemaking by the Board. See Final Rule, Debit CardandInterchange Fees andRouting, 77 Fed. Reg. 46,258 (adopted Aug. 3, 2012) (codified at 12 C.F.R. §235.4). 10 "Theterm 'network fee' means any fee charged and received by a payment card network with respect to an electronic debit transaction, otherthan an interchange transaction fee." § 1693o-2(c)(l0). 11 "Paymentcardnetwork" is defined as "an entity that directly, orthrough licensed members, processors, oragents, provides theproprietary services, infrastructure, and software thatroute information and data to conduct debit card orcredit card transaction authorization, clearance, and settlement, and that aperson uses in orderto accept as a form ofpayment abrand ofdebit card." § 1693o-2(c)(11). 12electronic debit transaction may be processed" to one such network ortwo or more affiliated networks or "inhibitthe ability ofany person who accepts debit cards for payments to direct the routing ofelectronic debit transactions for processing over any payment card network that mayprocess such transactions." § 1693o-2(b)(l)(A)-(B). IV. The Board's Rule Afterthe enactment ofthe Dodd-FrankAct, the Board sought information from various industry participants to assist the agency in its initial rulemaking. The Board met with debit card issuers, payment card networks, merchant acquirers, consumer groups, and industry trade associations on a number ofoccasions to discuss a host ofissues including debit transaction processing flows, transaction fee structures and levels, fraudprevention activities, fraud losses, routing restrictions, card-issuing arrangements, and incentive programs. 12 In September 2010, the Board circulated surveys to financial organizations with assets totaling $10 billion ormore, networks that process debit card transactions, and the largest nine merchant acquirers in orderto collect data on PIN, signature, and prepaid debit card operations and, for each card type, the costs associated with interchange and othernetwork fees, fraud losses, fraud-prevention and data-security activities, network exclusivity arrangements, and debit-card routing restrictions. 75 Fed. Reg. at 81,724-25. In both the proposed and final rulemaking, the Boardprovided a

12 Notice ofProposed Rulemaking, Debit CardInterchange Fees andRouting, 75 Fed. Reg. 81,722, 81,724 (proposed Dec. 28, 2010) (to be codified at 12 C.P.R.§§ 235.1- 235.10) ("NPRM"); see also Durbin Comments, supra note 5, at 2 (describing Board's "information-gathering process" as "notable for its transparency and thoroughness"). 13detailed summary ofthe survey responses, see id. at 81,724-26; 76 Fed. Reg. at 43,397- 98, and upon issuing the Final Rule, itreleased a full report including survey statistics. 13 A. Proposed Rule On December 28, 2010, the Board issued a NPRM implementing the Durbin Amendment and requesting public comments. 75 Fed. Reg. at 81,722. Stemming from its determination to include "onlythose costs that are specifically mentioned for consideration in the statute," the Boardproposed that the interchange transaction fee standard be limited to the costs associated with the authorization, clearing, and settlement ("ACS") ofan electronic debit transaction that vary with the number oftransactions sent to the issuerwithin the reportingperiod. !d. at 81,734-35, 81,739. The Boardnoted that, by focusing on the issuer's variable, per-transaction ACS costs, it was carrying out Congress's mandate to establish standards to assess whether an interchange fee is reasonable and proportional to the cost incurred by the issuerwith respect to the transaction. !d. Consequently, in the NPRM, the Board suggested that network processing fees, 14 as well as fixed 15 and overhead16 costs common to all debittransactions

13 See generally Bd. ofGovernors ofthe Federal Reserve Sys., 2009Interchange Revenue, CoveredIssuer Cost, andCoveredIssuer andMerchantFraudLossRelatedto Debit Card Transactions [Dkt. #33] (JointAppendix 0261-0291), available at http://www.federalreserve.gov/paymentsystems/files/debit fees_costs.pdf. 14 75 Fed. Reg. at 81,735-36, 81,739; 76 Fed. Reg. at 43,424. The Boardproposed in the NPRMthat network fees be excluded from the interchange fee standard. 7 5Fed. Reg. at 81,735. Including them in allowable costs would risk putting merchants "inthe position ofeffectively paying all network fees associated with debit card transactions" because "an acquirer would pay its own network processing fees directly to the network and would indirectly pay the issuer's network processing fees through the allowable costs included in the interchange fee standard." !d. 14and not attributable to the ACS ofany one transaction, be excluded from recovery under the interchange transaction fee standard. Fraud losses and the costs offraud-prevention and reward programs were also deemed unallowable because they are not attributable to the variable ACS costs incurred by an issuer. 75 Fed. Reg. at 81,755, 81,760. While merchants overwhelmingly supported the Board's plan to limit allowable costs withinthe interchange transaction fee standard to only incremental ACS costs, networks and issuers advocated expanding the proposed set ofallowable costs. 76 Fed. Reg. at 43,424-25. Indicating that its proposal was still subjectto change, the Board "request[ed] comment on whether it should allow recovery through interchange fees of the other costs ofa particulartransaction beyond authorization, clearing, and settlement" and, ifso, "onwhat other costs ofa particulartransaction, including network fees paid by issuers for the processing oftransactions, should be considered allowable costs." 75 Fed. Reg. at 81,735.

15 The Boardproposedthat fixed costs-even ifincurred for activities related to the ACS ofdebit card transactions-notbe factored into allowable costs within the interchange fee calculus. 75 Fed. Reg. at 81,736 ("This [proposed] measure would notconsider costs that are common to all debit card transactions and could never be attributed to anyparticular transaction [i.e., fixed costs], even ifthose costs are specific to debit transactions as a whole."). Indeed, the Board specifically contemplated that costs that do not vary with the number oftransactions sent to the issuer overthe calendaryear, such as network connectivity fees and fixed costs ofproduction, would be excluded as "unallowable, fixed costs," or "those costs that do not vary, up to existing capacity limits, with the numberof transactions sent to the issuer overthe calendaryear," under the interchange transaction fee standard. 

### !d. at 81,736, 81,739, 81,760. 16 In the NPRM, the Boardrecommended that the cost ofan issuer's facilities, human resources, and legal staff, as well as its costs in operating abranch office, be categorized as common overhead costs that cannot be allocated for the purpose ofcalculating its permissible interchange transaction fee. 75 Fed. Reg. at 81,735, 81,760. 15Drawing on its comprehensive survey data relating to debit transaction fees, the Boardproposed two alternative standards to govern interchange fees. The first, which the Board called "Alternative 1," allowed each issuerto recover its actual incremental ACS costs up to a safe harbor ofseven cents ($.07) pertransaction ifthe issuer chose not to determine its individual allowable costs, and up to a cap oftwelve cents ($.12) ifit did. 75 Fed. Reg. at 81,736-38. The second, "Alternative 2," set a cap at a flat twelve cents ($.12) pertransaction. 

### !d. at 81,738. With respect to network non-exclusivity for routing debit transactions, the Board requested comment on two alternative methods for implementation. The first, called "AlternativeA,"required at leasttwo unaffiliatedpayment card networks active on each debit card, even ifone networkprocessed only signature transactions and one handled only PIN transactions. See 75 Fed. Reg. at 81,749. The second, "Alternative B"required at least two active unaffiliated payment card networks for each type ofauthorization method-i.e., at leasttwo to process PIN transactions and two to process signature. 75 Fed. Reg. at 81,749. In either case, issuers and networks could not inhibit a merchant's ability to direct the routing ofan electronic debit transaction over any available network. 

### !d. at 81,751. More than 11,500 commenters-including several ofthe named plaintiffs, as well

as various issuers, payment card networks, consumers, consumer advocates, trade associations and members ofCongress-repliedto the Board's request for comment. 76

16Fed. Reg. at43,394. 17 In drafting the Final Rule, the Board relied on the voluminous comments, the statutory provisions, the available cost data, its understanding ofthe debit payment system, and otherrelevant information. 76 Fed. Reg. at 43,394. B. Final Rule The Board'sFinal Rule was published on July 20, 2011 and became effective on October 1, 2011. See id. As its standard for assessing whetherthe interchange fee for a debit transaction is reasonable and proportional to the issuer's costs, the Board adopted "a modified version ofproposed Alternative 2." Id. at 43,404. Itpermits each issuerto receive a fee as high as twenty-one cents ($.21) pertransaction plus an advalorem amount offive basis points ofthetransaction's value (0.05%). 12 C.P.R. § 235.3(b). The Board increased the allowable interchange fee (from twelve cents in Alternative 2 to twenty-one cents in the Final Rule) after concluding that the language and purpose ofthe Durbin Amendment allow the Board to consider additional costs not explicitly excluded from consideration by the statute. !d. at 43,426-27. Accordingto the Board,§ 1693o-2(a)(4)(B) on the one hand requires the Boardto consider incremental ACS costs incurred by issuers, and on the otherhandprohibits consideration ofany issuer costs that are not specific to a particular transaction; but it is silentwith respect to costs that fall into neither category (e.g., costs specific to aparticulartransaction but are

17 76 Fed. Reg. at 43,394; see generally Durbin Comments, supra note 5; FMI, Comments in Response to Notice of ProposedRulemakingonDebit CardInterchange Fees andRouting (Feb. 22, 2011) [Dkt. #33] (Joint Appendix 0141-0148); NACS Comments, supra note 4; NRF Comments, supra note 8. 17notincremental ACS costs). 

### !d. at43,426. TheBoard concludedthat ithad discretion to consider costs onwhichthe statute is silent. 

### !d. In setting the final interchangetransaction fee standard, the Board considered all costs for which ithaddata, otherthan those prohibited under subsection (a)(4)(B). 

### !d. Based on survey data andpublic comments, the Board found that issuers incurtransaction costs otherthanthe variable ACS costs thatthe Board originallyproposed as the only allowable costs in the interchange fee, andthat "noelectronic debit transaction can occur without incurring these [non-variable ACS] costs, makingthem

... specific to each and every electronic debit transaction" underthe statute. 

### !d. at 43,427; see also id. at 43,404. Consequently, the Boardamended its final interchangetransaction fee standard to include, in addition to variable ACS costs: (1) fixed costs related toprocessing a particulartransaction, such as network connectivity and software, hardware, equipment, and labor; (2) transaction monitoring costs; (3) an allowance for fraud losses (the ad valorem component); and (4) networkprocessing fees. 

### !d. at43,404, 43,429-31. 18 As to the network non-exclusivity rule, the Board concludedthat "[t]heplain language ofthe statute does not require thatthere betwo unaffiliated paymentcard networks available to the merchant for each method ofauthentication." 

### !d. at 43,447; see also 

### id. ("(T]he statute does not expressly require issuers to offermultiple unaffiliated signatureandmultiple unaffiliated PIN debit card network choices on each card."

18 The Board still excluded from the final interchange transaction fee standard other costs not incurred as a consequence ofeffecting a transaction, including costs related to customerinquiries, rewardprograms, corporate overhead (e.g., executive compensation), establishingthe accountrelationship, card production and delivery, marketing, research and development, and networkmembership fees. 

### !d. at 43,404, 43,427-29. 18(emphasis added)). Hence, the Board adopted Alternative A, which requires only that two unaffiliated networks be available for each debit card, not for each authorization method. 12 C.F.R. § 235.7(a)(2) & Official Cmt. 1; 76 Fed. Reg. at 43,404. Onthe same day that the Board adopted its Final Rule on debit card interchange fees and network non-exclusivity, it also published a separate Interim Final Rule on a proposed adjustmentto the interchange fee for fraud-prevention costs under 15 U.S.C. § 1693o-2(a)(5). See 76 Fed. Reg. at 43,478. The Board has since finished that rulemaking, and on August 2, 2012 it adopted a final rule governing the fraud-prevention cost adjustment. See 77 Fed. Reg. 46,258; 12 C.F.R. § 235.4. 19 V. This Litigation OnNovember 22, 2011, plaintiffs sued the Board, seeking a declaratoryjudgment thatthe Final Rule's interchange fee and network non-exclusivity provisions (12 C.F.R. §§ 253.3(b) and 235.7(a)(2)) are arbitrary, capricious, an abuse ofdiscretion, and otherwise not in accordance with the law. See generally Compl. [Dkt. #1]. Moreover, plaintiffs seek costs and reasonable attorneys' fees pursuant to 28 U.S.C. § 2412, and such otherreliefas the Court deems reasonable and proper. See generally Am. Compl. Plaintiffs amended their complaint on March 2, 2012. !d.

19 The Board allows issuers to "receive orcharge an amount ofno more than 1centper transaction in addition to any interchange transaction fee it receives or charges" ifthe issuer "develop[s] and implement[s] policies and procedures reasonably designed to take effective steps to reduce the occurrence of, and costs to all parties from, fraudulent electronic debittransactions, includingthroughthe development and implementation of cost-effective fraud-prevention technology." 12 C.F.R. § 235.4(a), (b)(l). 19As individual retailers that accept debit cards and trade associations comprised of merchants, see supra p. 2, plaintiffs contend thatthe Final Rule is an unreasonable interpretation ofthe Durbin Amendmentbecause it ignores Congress's directives regarding interchange fees and network exclusivity. See Am. Compl.**~~** 5, 11. As to the former, plaintiffs assertthatthe Durbin Amendment limits the Board's consideration of allowable costs to the "incremental cost" of"authorization, clearance and settlement ofa particularelectronic debit transaction," and that, by including other costs in the fee standard, the Board "actedunreasonably and in excess ofits statutory authority."**!d.~~** 6, 70-73, 82-83. Regardingthe latter, plaintiffs argue thatthe Board disregarded the plain meaning ofthe Durbin Amendment and misconstrued the statute by adopting a network non-exclusivity rule requiring all debit cards be interoperable with at leasttwo unaffiliated payment networks, ratherthan requiring that all debit transactions be able to

run over at least two unaffiliated networks.**!d.~~** 9-10, 91-93. Plaintiffs moved for summaryjudgment on March 2, 2012, arguing thatthe Final Rule's interchange transaction fee and network non-exclusivity regulations should be declared invalid underthe Administrative Procedure Act ("APA"), 5 U.S.C. § 706(2), because the Board impermissibly implemented the Durbin Amendment's statutory command and thus exceeded its authority. Pls.' Mot. for Summ. J. ("Pls.'s Mot.") at I [Dkt. #20]; Pis.' Mem. in Supp. ofPls.' Mot. for Summ. J. ("Pls.' Mem.") at 2 [Dkt. #20]. The Courtpermitted amicus curiae briefs to be filed by three differentparties: (1) a consortium ofmajor nationwide bank and credit union trade associations in the United

20States;20 (2) SenatorRichardJ. Durbin, a member ofCongress and the primary author of the Durbin Amendment;21 and (3) a group ofconvenience stores, quick-service restaurants and specialty coffee shops that operate small business franchises and licensed stores.22 The lattertwo groups ofamici filed briefs in support ofplaintiffs' motion for summaryjudgment;the bank and creditunion amici supported neitherparty. OnApri113, 2012, the Board filed a cross-motion for summaryjudgment. contendingthatplaintiffs' claims lack merit and thatthe Board is entitled tojudgmentas

a matter oflaw. Def.'s Cross-Mot. for Summ. J. ("Def.'s Cross-Mot.") at 1 [Dkt. #23]; Def.'sMem. in Supp. ofDef.'sMot. for Summ. J. and in Opp'nto Pls.' Mot. for Summ. J. ("Def.'s Mem.") at 1-2 [Dkt. #23]. On October2, 2012, I heard oral argument from the parties as well as the bank and credit union amici. See Civ. Case No. 11-2075, Minute Entry, Oct. 2, 2012. Forthe reasons set forth below, I agree with the plaintiffs and GRANT summaryjudgmentin their favor.

20 See generallyAmici Curiae BriefofThe Clearing House Ass'nL.L.C. et al. ("Clearing House Amicus Br.") [Dkt. #22]. Amici are The Clearing House Association L.L.C., American Bankers Association, ConsumerBankers Association, Credit Union National Association, The Financial Services Roundtable, Independent Community Bankers of America, Mid-Size BankCoalition ofAmerica, National Association ofFederal Credit Unions, andNational BankersAssociation. 

### !d. 21 See generallyAmicus Curiae BriefofSenatorRichard J. Durbin ("Durbin Amicus Br.") [Dkt. #27]. 22 See generallyAmici Curiae Briefof7-Eleven, Inc. et al. ("7-Eleven Amicus Br.") [Dkt. #30]. Amici are 7-Eleven, Inc., Auntie Anne's, Inc., BurgerKing Corporation, CKE Restaurants, Inc., International Dairy Queen, Inc., Jack in the BoxInc., Starbucks Corporation, and The Wendy's Company. 

### !d. 21STANDARD OF REVIEW I. SummaryJudgment Summaryjudgmentis appropriate when the record evidence demonstrates that "there is no genuine dispute as to any material fact and the movant is entitled tojudgment

as a matter oflaw." Fed. R. Civ. P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The burden is on the movingparty to demonstrate an "absence ofa genuine issue ofmaterial fact" in dispute. Celotex, 477 U.S. at 323. In a case involving judicial review offinal agency action underthe APA, however, "the Court'srole is limited to reviewingthe administrative record." Air Transp. Ass 'n of Am. v. Nat 'l Mediation Bd., 719 F. Supp. 2d 26, 32 (D.D.C. 2010) (citations omitted). "[T]he function ofthe district court is to determine whether or not as a matter oflaw the evidence in the administrative record permittedthe agency to made the decision it did." SelectSpecialty Hosp.-Bloomington, Inc. v. Sebelius, No. 09-2362, 2012 WL 4165570, at *2 (D.D.C. Sept. 19, 2012) (citations and internal quotation marks omitted). II. Administrative Procedure Act Underthe APA, the Court must set aside agency action that exceeds the agency's "statutoryjurisdiction, authority, or limitations." 5U.S.C. § 706(2)(C). To determine whether an agency has acted outside its authority, I must apply the two-step framework under Chevron, USA., Inc. v. NaturalRes. DefCouncil, Inc., 467 U.S. 837 (1984). See Ass'nof Private Sector Colts. & Univs. v. Duncan, 681 F.3d 427,441 (D.C. Cir. 2012). A Chevron analysis first requires the reviewing court to determine "whether Congress has directly spoken to the precise question at issue." Chevron, 467 U.S. at 842. 22To resolve whether "the intent ofCongress is clear" under this first step, id., the court must exhaust the "traditional tools ofstatutory construction," including textual analysis, structural analysis, and (when appropriate) legislative history, id. at 843 n.9; BellAt!. Tel. Cos. v. FCC, 131 F.3d 1044, 1047 (D.C. Cir. 1997). "Iftheintent ofCongress is clear, that is the end ofthe matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent ofCongress." Chevron, 467 U.S. at 842-43. Ifafter employing these tools, however, the Court concludes that the statute is silent or ambiguous on the specific issue, the Court moves on to step two and defers to any agency interpretation that is based on a permissible construction ofthe statute. !d. at 843. An agency's construction is permissible "unless it is arbitrary or capricious in substance, ormanifestly contrary to the statute." Mayo Found.forMed. Educ. & Research v. UnitedStates, 131 S. Ct. 704, 711 (2011) (citations and internal quotation marks omitted). "[T]hewhole point ofChevron is to leave the discretionprovidedby the ambiguities ofa statute with the implementing agency." Ass 'n of Private Sector Colts., 681 F.3d at 441 (citations and internal quotation marks omitted). ANALYSIS I. Plaintiffs Have MetTheirBurden ofProduction for Article III Standing. Curiously, the Board contends in a footnote thatplaintiffs have failed to establish Article 

### III standing because they failed in their opening briefto provide affidavits or other evidence that set forth specific facts demonstrating standing. See Def.'sMem. at 13 n.7 (citing Sierra Club v. EPA, 292 F.3d 895, 899 (D.C. Cir. 2002)). Butreading on, the Sierra Club court explicitlyrecognized that: 23In many ifnot most cases the petitioner's standing to seek review of administrative action is self-evident; no evidence outside the administrative record is necessary for the court to be sure ofit. In particular, ifthe complainant is an object ofthe action (or forgone action) at issue-as is the case usually in review ofa rulemaking

...-there should be little question that the action or inaction has caused him injury, and that ajudgment preventing orrequiring the action will redress it. 292 F.3d at 899-900 (citation and internal quotation marks omitted). Indeed, our Court ofAppeals has expressly rejected the use ofthe Sierra Club rule

as aprocedural "gotcha"in cases where standing was reasonably thought to be selfevident. SeeAm. LibraryAss 'n v. FCC, 401 F.3d 489, 493-95 (D.C. Cir. 2005); see also FundforAnimals, Inc. v. Norton, 322 F.3d 728, 733 (D.C. Cir. 2003) ("Sierra Club, however, does not require parties to file evidentiary submissions in support ofstanding in every case. To the contrary, our decision made clear that '[i]n many ifnot most cases the petitioner's standing to seek review ofadministrative action is self-evident."'). For instance, inAmericanLibraryAssociation, our Circuit Court explained that interpreting Sierra Club as requiring longjurisdictional statements in opening briefs was inconsistent with precedent, a waste of judicial resources, and an unnecessary burden on litigants. 401 F.3d at 494. Indeed, the court went on to clarify that Sierra Club need only "remind[] petitioners challenging administrative actions that, when they havegood

reason to know that theirstanding is notself-evident, they should explain the basis for their standing at the earliest appropriate stage in the litigation." 

### !d. at 493. Here, plaintiffs had every reason to believe that their standingwas self-evident and

no cause to suspect that standing would be challenged in this court at all, much less in a

24footnote on summaryjudgment! 23 Moreover, the administrative record contains countless examples ofhowplaintiffs are injured by the Board's interchange transaction fee and network non-exclusivity regulations. 24 CfAm. Chemistry Council v. Dep 't of Transp., 468 F.3d 810, 822, 824 (D.C. Cir. 2006) (standing canbe "self-evident" from the administrative record). The Board's own rulemaking recognizes that it is merchants thatpay interchange and network fees and are thus directly affected by the Board'sFinal Rule regulating both. 25 See Fund forAnimals, 322 F.3d at 734 ("[F]or the purpose of determining whether standing is self-evident, we see no meaningful distinction between a regulation that directly regulates a party and one that directly regulates the disposition of

a party's property."). Accordingly, it was reasonable for each plaintiffto assume that it (or in the case ofthe trade associations, one ofits members) would suffer an Article III injury whenthe Board'sFinal Rule was implemented. And in theirreply brief, plaintiffs submitted declarations demonstrating what was already self-evident: that they will suffer cognizable harms as aresult ofthe Board's regulations. See Pls.' Reply at 7-9; cfCmtys.

23 The Board chose notto file amotion to dismiss for lack ofstanding and gave plaintiffs no indication that it would challenge their claims onjusticiability grounds. See Pis.' Reply Mem. in Supp. ofPls.' Mot. for Summ. J. and in Opp'nto Def.'s Mot. for Summ. J. ("Pls.' Reply") [Dkt. #26] at 7n.3. 24 See, e.g., 76 Fed. Reg. at 43,462 ("[I]it is possible that merchants with a large proportion ofsmall-tickettransactions may experience an increase in total interchange fees

...."); id. at 43,448 ("Alternative A provides merchants fewer routing options with respectto certain electronic debit transaction compared to Alternative B."). 25 See, e.g., 76 Fed. Reg. at 43,396 ("The interchange fee is set by the relevant network andpaidby the [merchant] acquirer to the issuer

.... [T]he [merchant] acquirer charges the merchant a merchant discount

...that includes the interchange fee"); 75 Fed. Reg. at 81,727 ("[I]n point-of-sale transactions, these [network-exclusivity prohibition and routing] provisions improve the ability ofa merchant to select the network that minimizes its cost ... and otherwiseprovides the most advantageous terms."). 25AgainstRunwayExpansion, Inc. v. FAA, 355 F.3d 678, 684-85 (D.C. Cir. 2004) (affidavits submittedwithreply briefare sufficient underSierra Club because they made associational standing "patently obvious" and respondent was not prejudiced). In short, plaintiffs have easily met theirburden ofproduction with regard to Article III standing here, and this Courtwill thus proceedto the merits. 

### II. The InterchangeTransaction Fee Regulation Is Invalid Underthe APA. Plaintiffs contend thatthe Final Rule's interchange transaction fee standard, 12 C.F.R. § 235.3(b), is plainly foreclosed by the text, structure, and purpose oftheDurbin Amendment and is arbitrary, capricious, and contrary to law. Accordingto plaintiffs, the plain language and legislative history ofthe statute make clearwhich issuer costs may be included in the interchange transaction fee standard, and the Board's inclusion ofother costs cannot survive scrutiny under Chevron's first step. The Board, meanwhile, takes the positionthatthe DurbinAmendment is silent, and therefore ambiguous, with respect to issuer costs not explicitly addressed in the statute. And because the final interchange fee provision is a reasonable construction ofthe statute, says the Board, it is entitled to Chevron deference. Forthe following reasons, I agree with the plaintiffs. 

### A. TheDurbin AmendmentPlainly Limits the Costs AllowableWithin the InterchangeTransaction Fee Standardto Those Identified in 15 U.S.C. § 1693o-2(a)( 4)(B)(i). Determining whether Congress has spoken to the precise question at issue through "the [statutory] language itself, the specific context in which that language is used, and the broader context ofthe statute as a whole" is, ofcourse, this Court's first task. Robinson v. Shell Oil Co., 519 U.S. 337, 341 (1997). Our Court ofAppeals has directed 26this Court to use "all traditional tools ofstatutory interpretation, includingtext, structure, purpose, and legislative history, to ascertain Congress's intent at Chevron step one." Nat'l Cable & Telecomms. Ass 'n v. FCC, 567 F.3d 659, 663 (D.C. Cir. 2009) (citation and internal quotation marks omitted). Ifthis examination yields a clear result, "then Congress has expressed its intention as to the question, and deference is not appropriate." NaturalRes. DefCouncil, Inc. v. Daley, 209 F.3d 747, 752 (D.C. Cir. 2000). To discern the text'splain meaning, the Court is to look to "the language ofthe statute itself." Caraco Pharm. Labs., Ltd. v. Novo NordiskA/S, 132 S. Ct. 1670, 1680 (2012) (citation omitted). "[W]hen the statute's language is plain, the sole function ofthe courts-at least where the disposition required by the text is not absurd-isto enforce it according to its terms." Hartford Underwriters Ins. Co. v. Union Planters Bank, 530 U.S. 1, 6 (2000) (citation and internal quotation marks omitted). "Unless otherwise defined, statutory terms are generally interpreted in accordance with their ordinary meaning." BPAm. Prod. Co. v. Burton, 549 U.S. 84, 91 (2006); see also FCCv. AT& T Inc., 131 S. Ct. 1177, 1182 (2011). An analysis ofthe statutory text, however "does not end here, but must continue to 'the language and design ofthe statute as a whole."' Am. Scholastic TVProgramming Found. v. FCC, 46 F.3d 1173, 1178 (D.C. Cir. 1995) (quoting Fort StewartSch. v. FLRA, 495 U.S. 641,645 (1990)). 26 The Court must also "exhaustthe traditional tools of

26 See also Roberts v. Sea-LandServs., Inc., 132 S. Ct. 1350, 1357 (2012) ("It is a fundamental canon ofstatutory construction that the words ofa statute mustbe read in their context and with a view to theirplace in the overall statutory scheme." (citation omitted)); BellAtl. Tel. Cos., 131 F.3d at 1047 ("The literal language ofaprovision taken 27statutory construction, including examiningthe statute's legislative history to shed new light on congressional intent, notwithstanding statutory language that appears superficially clear." 

### Sierra Club v. EPA, 551 F.3d 1019, 1027 (D.C. Cir. 2008) (citations omitted); 

### see alsoAFL-C/0v. FEC, 333 FJd 168, 172 (D.C. Cir. 2003) ("We consider the provisions at issue in context, using traditional tools ofstatutory construction and legislative history."). i. Subsection (a)(4)(B) Bifurcates the Universe ofElectronic Debit Transaction Costs into the Allowable and the Impermissible. The Durbin Amendment instructs the Board to ensure that any interchange fee charged by an issuer "is reasonable and proportional to the cost incurred by the issuer with respect to the transaction," § 1693o-2(a)(3), and in so doing it must "distinguish between" two categories ofcosts. 

### !d. § 1693o-2(a)(4)(B)(i)-(ii). Plaintiffs contend that these categories bifurcate the entire universe ofcosts into two, and only two, groups: (1) costs that are "incremental" or variable, incurred by an issuer for its role in the "authorization, clearance, or settlement," and that relate to a "particular" or single electronic debit transaction, which 

### "shall be considered,"§ 1693o-2(a)(4)(B)(i) (emphasis added); and (2) 

### "other costs" "incurredby an issuer which are not specific to a particular electronic debit transaction," which 

### "shall notbe considered," § 1693o2(a)(4)(B)(ii) (emphasis added). The Board disagrees, arguing that subsection (a)(4)(B) is silent when it comes to costs that are specific to aparticular electronic debit transaction butthat are not incremental ACS costs, as those costs do not fit into either subsection
out ofcontext cannot provide conclusiveproofofcongressional intent, any more than a word can have meaning without contextto illuminate its use."'). 28(a)(4)(B)(i) or (a)(4)(B)(ii). According to the Board, this creates ambiguity that the Board has the discretion to resolve. How convenient. Startingwith subsection (a)(4)(B)'s text, I have no difficulty concludingthat the statutory language evidences an intent by Congress to bifurcate the entire universe of costs associated with interchange fees. Indeed, Congress directed the Board to "distinguishbetween"-or, according to its plain and ordinary meaning, "separate into different categories" or "make a distinction"27-between: (1) incremental ACS costs relating to a particulartransaction, which "shallbe considered" in establishing the interchange transaction fee standard, and (2) "othercosts" which are not specific to a particulartransaction, which the Board "shall not" consider. § 1693o-2(a)(4)(B)(i)-(ii) (emphases added). By using strategically placed "shall" and "shall not" terms-which plainly indicate the inclusion ofthe first category ofcosts and exclusion ofthe secondCongress expressed its clear intent to separate costs that must be included in the interchange transaction fee standard and "othercosts" that must be excluded. SeeAss 'n ofCivilian Technicians, Mont. Air ChapterNo. 29 v. Fed. LaborRelationsAuth., 22 F.3d 1150, 1153 (D.C. Cir. 1994) ("The word 'shall' generally indicates a command that admits ofno discretion on the part ofthe person instructed to carry outthe directive."). Furthermore, Congress used the inclusive phrase "other costs," as opposed tojust "costs,"to referto those costs notto be considered in the interchange transaction fee

27 Webster's New College Dictionary 337 (3d ed. 2008) (defining "distinguish" as "to recognize as being different or distinct; separate into different categories; perceive or indicate differences; discriminate"); Black'sLawDictionary 542 (9th ed. 2009) (defining "distinguish" as "to make a distinction"). 29standard. The plain import ofCongress's word choice, according to the ordinary definition of"other" and relevant case law, is that this second, prohibited category of "othercosts" was intended to subsume all costs not explicitly addressed in the first, permissible category ofcosts. See Merriam- Webster's Collegiate Dictionary 878-79 (11th ed. 2009) (defining "other" as "beingthe one (as oftwo or more) remaining or not included; being the one or ones distinct from that orthose first mentioned or implied").28 In otherwords, the plain text makes clearthat the incremental ACS cost ofaparticular electronic debit transaction is the only costthe Boardwas expressly authorized to consider in its interchange transaction fee standard. The Board's counterargument-thatCongress directed it not to consider "other costs incurred by an issuerwhich are not specific to aparticular electronic debit transaction,"§ 1693o-2(a)(4)(B)(ii) (emphasis added), meaning that only costs "not specific to aparticular

...transaction" are barred from consideration-iswholly unpersuasive. See Def.'s Mem. at 20-21. The non-restrictive pronoun "which" is a descriptor, rather than a qualifier, and Congress has repeatedly utilized this term to further describe the precedingphrase-here, "othercosts"-ratherthan to condition or limit it. See UnitedStates v. Indoor Cultivation Equip.from High Tech Indoor Garden Supply, 55 F.3d 1311, 1315 (7th Cir. 1995) (concluding that Congress's use ofthe

28 See alsoAss 'n of Private Sector Calls., 681 F.3d at 443-44 (holding that Congress intended the phrase "other incentive payment" to broadly cover abuses not enumerated); FCInv. Grp. LCv. IFXMkts., Ltd., 529 F.3d 1087, 1100 (D.C. Cir. 2008) ("This interpretation, one which gives meaning to the word 'other' by reading sequentially to understand 'other' as meaning 'different from that already stated in subsections (a)-(c),' gives coherent effect to all sections

...." (quoting PTUnited Can Co. v. Crown Cork & Seal Co., 138 F.3d 65, 71-72 (2d Cir. 1998))). 30pronoun "which," as in "[a]ll conveyances, including aircraft, vehicles, or vessels, which

are used to ... facilitate [drug transactions]," did not limit the meaning oftheword it amended, "conveyance,"to a vehicle or vessel used or intended to be used to facilitate a drug transaction). 29 Not surprisingly, the Board fails to cite any persuasive definition or

case law to the contrary, and its focus on commas is ared herring. See, e.g., Barrettv. Van Pelt, 268 U.S. 85, 91 (1925) ("Punctuation is a minor, and not a controlling, element in interpretation, and courts will disregard the punctuation ofa statute, or re-punctuate it, ifneed be, to give effect to what otherwise appears to be its purpose and true meaning." (citation omitted)). Finally, statements by SenatorRichard J. Durbin, the Amendment's chiefsponsor, confirmthat Congress intended to bifurcate the universe ofcosts into incremental ACS costs includable in the interchange transaction fee standard and all other costs to be excluded. Specifically, in addressing the meaning ofthe Amendment on the floor ofthe Senate priorto its final passage, Senator Durbin stated: Paragraph (a)(4) [ofthe Amendment] makes clearthat the costto be considered by the Board in conducting its reasonable and proportional analysis is the incremental cost incurred by the issuer for its role in the authorization, clearance, or settlement ofa particular electronic debit transaction, as opposedto other costs incurredby an issuerwhich are not specific to the authorization, clearance, orsettlementof aparticular electronic debit transaction.

29 See also William Strunk Jr. & E.B. White, The Elements ofStyle 1, 3 (2d ed. 1972) (describing an "elementary rule[ ] ofusage" that a "nonrestrictive clause is one that does not serve to identify or define the antecedent noun"); cfIn re Connors, 497 F.3d 314, 319 (3d Cir. 2007) ("The word 'that' is arelative pronoun that restricts and, therefore, modifies, the preceding noun[.]") 31156 Cong. Rec. S5,925 (daily ed. July 15, 2010) (emphasis added). Although the Board admits that Senator Durbin's statement appears to divide the universe ofcosts into two categories, it argues nonetheless that the actual language ofthe statute overrides any floor statement by the bill's sponsor. See Def.'s Mem. at 20. Chevron, however, contemplates that legislative history-includinghistory that does not match the text ofthe statute verbatim-will be read alongwith the statute to determine Congress's intent. See Chevron, 467 U.S. at 851-53, 862-64;AidAss 'nforLutherans v. US. PostalServ., 321 F.3d 1166, 1176-78 (D.C. Cir. 2003) (using legislative history, in tandem with plain language ofstatute, in Chevron step one). In this case, SenatorDurbin's statement, read in conjunction with the statute's text, confirms that Congress intended to divide all costs into two categories: those that can and those that cannot be considered in setting the interchange fee standard. ii. 

### Congress Intended to Exclude All Costs Otherthan the Incremental ACS Costs Incurred by the Issuerfor a Particular Debit Transaction from the Interchange Fee Standard. Furtherparsing ofthe statute confirms that Congress intended to narrow the scope ofcosts considered in the interchange transaction fee standard. Subsection (a)(4)(B)(i) directs the Boardto include in the standard those ACS costs that are "incremental [to the] cost incurred by an issuer for the role of the issuer in

... aparticular electronic debit transaction." 

### § 1693o-2(a)(4)(B)(i) (emphasis added). The term "incremental" limits the includable costs to "variable, as opposed to fixed," ACS costs. Me. Pub. Serv. Co. v.

32

### FERC, 964 F.2d 5, 9 (D.C. Cir. 1992).30 And the subsection includes only those costs incurred for the issuer's role in processing the transaction. § 1693o-2(a)(4)(B)(i). In addition, subsection (a)(4)(B)(ii) instructs the Boardto exclude from the standard any "othercosts incurred by an issuer which are not specific to aparticular

... transaction." §1693o-2(a)(4)(B)(ii) (emphases added). Congress thus directed the Board to omit "othercosts incurred by an issuer which are not [unique] to a [distinct or individual] transaction."31 The plain text ofthe Durbin Amendment thus precludes the Board from considering in the interchange fee standard any costs, otherthan variable ACS costs incurred by the issuer in processing each debit transaction. The Board contends that the statute's failure to define the terms "incremental cost"

or "authorization, clearance, or settlement," or to delineate which types ofcosts are "not specific to a particular electronic debit transaction," renders those terms ambiguous, thereby givingthe Board the authority to fill those statutory gaps. See Def.'sMem. at 26-27. Not quite! IfI were to accept the Board's argument, then every term in the statute would have to be specifically defined or otherwise be deemed ambiguous. This result makes no sense, and more importantly, it is not the law. When a term is not defined in a statute, a court must assume that "the legislative purpose is expressed by the

30See also 75 Fed. Reg. at 81,735 (in NPRM, proposingthat "incremental cost" be defined as an average, variable and per-transaction cost that varies with the number of transactions); Webster's New College Dictionary 575 (3d ed. 2008) (defining "increment" as "a small positive or negative change in avariable"). 31 Webster's New College Dictionary 1085 (3d ed. 2008) (defining "specific" as "distinctive orunique; intended for, applying to, or acting on a given thing; definite"); Merriam- Webster's Collegiate Dictionary 903 (11th ed. 2009) (defining "particular" as "a separate part ofa whole; an individual fact, point, circumstance or detail; an individual or a specific subclass

... falling under some general concept orterm."). 33ordinary meaning ofthe words used." AT&T, 131 S. Ct. at 1182; UnitedStates v. Locke, 471 U.S. 84, 95 (1985) (distinguishing "filling a gap leftby Congress' silence" from "rewriting rules that Congress has affirmatively and specifically enacted") (citation omitted). "[T]he meaning ofstatutory language, plain ornot, depends on context,"King v. St. Vincent's Hasp., 502 U.S. 215,221 (1991), and the relevantprovisions, statutory design, and legislative history here clearly support my reading ofthe statute. First, the statute's information collectionprovision explicitly requires public disclosure only of information "concerningthe costs incurred, and interchange transaction fees charged or received

... in connection with the authorization, clearance orsettlementof electronic debit transactions." § 1693o-2(a)(3)(B) (emphasis added). That disclosure is limited to the same costs specified in subsection (a)(4)(B)(i) reinforces that those ACS costs are the only ones Congress intended to include in the interchange transaction fee standard. 32 Subsection (a)(4)(A) ofthe statute also directs the Board to considerthe "functional similarity" between "electronic debit transactions" and "checkingtransactions that are required within the Federal Reserve bank system to clearatpar" when prescribing standards used to assess whether an interchange transaction fee is reasonable andproportional to the issuer'stransactions. § 1693o-2(a)(4)(A) (emphasis added). The Board is thus requiredto consider how debit and checking transactions are "like" or

32 Conversely, ifCongress had intended to provide the Board with discretion to consider additional, unspecified costs "that are specific to aparticular electronic debit transaction but that are not incremental ACS costs," as the Board contends, Def.'s Mem. at 17, then Congress would have told the Board to report its findings concerning those costs, too. 34"[r]esemblingthough not completely identical" in terms oftheir "capab[ility] of performing" or "ab[ility] to perform a regular function." 33 Congress understood that debit cardtransactions are "akinto writing a check" because "[a]ll that happens

... is you deduct money from yourbank account." See 156 Cong. Rec. S3,696 (daily ed. May 13, 2010) (statement ofSen. Richard J. Durbin) ("That is why debit cards are advertised as check cards."). However, as SenatorDurbin explained, "there are zero transaction fees deducted when you use a check," unlike interchange fees, which "are deducted from every [debit] transaction left for the seller." !d. The Board even proposed in its NPRM to limit "allowable costs ...to those that the statute specifically allows to be considered, and not be expandedto include additional costs that apayor's bank in a check transaction wouldnot recoup throughfeesfrom thepayee's bank." 75 Fed. Reg. at 81,735 (emphasis added). The Board argues thatthe plain language ofsubsection (a)(4)(A) merely requires the Boardto considerthe functional similarity between electronic debit transactions and checkingtransactions in determining its interchange fee standard (which it did) and does notpreclude the Board's consideration ofdifferences. "Were courts topresume a delegation ofpower absent an express withholding ofsuch power,"however, "agencies would enjoy virtually limitless hegemony, a resultplainly out ofkeeping with Chevron[.]" Ry. LaborExecs. Ass'nv. Nar'lMediation Bd., 29 F.3d 655,671 (D.C. Cir.

33 Webster's New College Dictionary 1053 (3d ed. 2008) ("similar" defined as "like; resembling though not completely identical"); id. 462 (defining "functional" as "designed for or adapted for a specific function oruse; capable ofperforming; operative"); Merriam-Webster's Collegiate Dictionary 507 (11th ed. 2009) ("functional" means "performing or able to perform a regular function"). 351994); see alsoAm. BarAss'n v. FTC, 430 FJd457, 468 (D.C. Cir. 2005) ("[l]fthere is the sort ofambiguity that supports an implicit congressional delegation ofauthority to the agency to make a deference-worthy interpretation ofthe statute, we must look elsewhere thanthe [statute's] failure to negate[.]"). In fact, it defies common sense to read an explicit directive to consider "functional similarity" as authorization to consider differences, as well Lastly, subsection (a)(5)(A)(i) directs the Board "tomake allowance for costs incurred bythe issuer in preventing fraud" via an "adjustmentto the fee amount received

orchargedby an issuer" underthe interchange fee standard. 

### § 1693o-2(a)(5)(A)(i) (emphasis added). At first glance, Congress's choice ofwords here appears to sanction a wholesale inclusion offraud-prevention costs withinthe interchange transaction fee standard. However, subsection (a)(5)(A)(i) limits "any fraud-related adjustment" to the amount "reasonably necessary ...to prevent[] fraud in relation to electronic debit transactions involvingthat issuer," and (a)(5)(A)(ii) conditions that adjustment on an issuer's compliance with fraud-related standards that "require issuers to take effective steps to reduce the occurrences and costs of, and costs from, fraud in relation to electronic debittransactions." 

### § 1693o-2(a)(5)(A)(i)-(ii). SenatorDurbin's discussion of subsection (a)(5) sheds further light on this provision: It shouldbenotedthat any fraud prevention adjustmentto the fee amount would occurafterthe base calculation ofthe reasonable andproportional interchange fee amount takes place, and fraud prevention costs wouldnot be consideredas part ofthe incremental issuer costs upon which the reasonable andproportional fee amount is based. Further, any fraud prevention cost adjustment would be made on an issuer-specific basis, as each issuer must individually demonstrate that it complies with the 36standards establishedby the Board, and as the adjustment would be limited to what is reasonably necessary to make allowance for fraud prevention costs incurredbythatparticular issuer. 156 Cong Rec. S5,925 (daily ed. July 15, 2010) (statement ofSen. Richard J. Durbin) (emphases added); see also Durbin Comments, supra note 5, at 9. Accordingly, I find thatthe text and structure ofthe Durbin Amendment, as reinforced by its legislative history, are clear with regard to what costs the Boardmay consider in setting the interchange fee standard: Incremental ACS costs ofindividual transactions incurred by issuers may be considered. That's it! 

### B. TheBoard'sInterchange Fee Regulation Accounts for Costs ThatAre Unambiguously Foreclosed from Consideration by Congress. The Durbin Amendment is explicit about what costs the Board could consider in setting the interchange transaction fee, and the Board was required "to give effect to the unambiguously expressed intent ofCongress." Chevron, 467 U.S. at 842-43. As the "final authority on issues ofstatutory construction," federal courts are chargedwith "reject[ing] administrative constructions which are contrary to clear congressional intent." 

### !d. at 843 n.9. Forthe following reasons, Ireject the Board's construction ofthe Durbin Amendment as non-compliant with Congress's clear mandate. First, the Board'sunderstanding that athird category ofcosts can be recovered underthe interchange transaction fee standard is irreconcilable with the statute. In its Final Rule, the Board concluded that it could, in its discretion, factor into the interchange fee any costs "that are specific to a particular electronic debit transaction but that are not incremental costs related to the issuer's role in authorization, clearance, and settlement."

3776 Fed. Reg. at 43,426. According to the Board, the statute is silent as to costs not addressed in§ 1693o-2(a)(4)(B)(i) or (ii), and Congress did "notrestrict the factors the Board may consider in establishing standards for assessing whether interchange transaction fees are reasonable and proportional to cost." 76 Fed. Reg. at 43,424. 34 In exercising this purported discretion, the Board reads the statutory language prohibiting it from considering costs "not specific to a

### particular electronic debit transaction,"§ 1693o-2(a)(4)(B)(ii), as prohibiting it from considering only "those costs that are not incurred in the course ofeffecting 

### any electronic debit transaction," 76 Fed. Reg. at 43,426 (emphasis added). The Board, to its credit, still 

### didnot consider costs associated with corporate overhead (e.g., executive compensation), establishing and maintaining an account relationship, debit card production and delivery, marketing, research and development, insufficient funds handling, network membership fees, reward programs, and customer support, 

### id. at 43,427-29. Butthe Board

### did, contrary to the expressed will ofCongress, consider 

### "any cost that is notprohibited-i.e., any costthat is incurred in the course ofeffecting an electronic debit transaction," 

### id. at 43,426, including fixed costs (i.e., network connectivity and software, hardware, equipment, and associated labor), networkprocessing fees, transaction monitoring, and fraud losses, 

### id. at

34 

### See also id. at 43,426-27 ("[T]herequirement that one set ofcosts be considered and another set ofcosts 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 ofthe statute....By considering all costs for which it had data otherthan prohibited costs, the Board has complied with the statutory mandate notto consider costs identified in [(a)(4)(B)(ii)], has fulfilled the statutory mandate requiring consideration ofthe costs identified in [(a)(4)(B)(i)], and has chosen to consider other costs specific to particularelectronic debit transactions to the extent consistent with the purpose ofthe statute, in establishing its [interchange transaction fee] standard."). 

### 3843,429-31. As aresult, the final regulation sets a maximum fee that an issuer could

recover at twenty-one cents ($.21) pertransaction, plus an advalorem amount of.05% of each transaction's value, 12 C.F.R. §235.3(b); 76 Fed. Reg. at 43,422-well above the NPRM's seven- ($.07) and twelve-cent ($.12) proposals, 75 Fed. Reg. at 81,736-38. This interpretation runs completely afoul ofthe text, design and purpose ofthe Durbin Amendment. By improperly narrowing the scope ofexcludedcosts in subsection (a)(4)(B)(ii) to only those costs "not incurred in the course ofeffecting any electronic debit transaction," the Board expanded the range ofallowable costs in subsection (a)(4)(B)(i) to "any cost that is incurred in the course ofeffecting an electronic debit transaction." 76 Fed. Reg. at 43,326. In so doing, the Board not only ignored critical statutory terms such as "distinguish between," "other," "specific," "particular," "incremental," and "authorization, clearance, or settlement"35-whichprovide clear guidance, see supra pp. 28-30-butalso shoehorned a whole array ofexcluded costs into the interchange fee standard. Under the Final Rule, it is inconsequential whether costs are variable and result only from an individual transaction or are fixed and common to all transactions; so long

as a cost is incurred to effect "debit card transactions as a whole," the Board concluded that it may be considered in its interchange fee standard. 76 Fed. Reg. at 43,426; see also Def.'sMem. at 27 ("The Board further determined that a cost is specific to aparticular

35 The Board somehow found that it was "not

...necessary to determine whether costs are 'incremental,' fixed or variable, or incurred in connection with authorization, clearance, and settlement," 76 Fed. Reg. at 43,427, even though those are operative words in the statute. 39electronic debit transaction ifno such transaction can occur without incurring that cost."). Please! This reading ofthe law contradicts Congress's clear mandate that the Board is precluded from considering all costs, otherthan an issuer's variableACScosts related to

an individual debit transaction, in setting the interchange standard. Costs that are "not specific to aparticular debit transaction,"§ 1693o-2(a)(4)(B)(ii) (emphasis added), simply are notthe same as costs that are "not specific to debit transactions as a whole," 76 Fed. Reg. at 43,426 (emphasis added). And "the incremental cost incurred by an issuer for the role ofthe issuer in the authorization, clearance, or settlement ofa particular electronic debittransaction,"§ 1693o-2(a)(4)(B)(i), is not the same as "any cost that is incurred in the course ofeffecting an electronic debit transaction," 76 Fed. Reg. at 43,426 (emphasis added). In short, the Board's interpretation is utterly indefensible. As explained above, the statute is notsilent or ambiguous. Rather, the plain text ofsubsection (a)(4)(B) and the statutory structure and legislative history ofthe Durbin Amendment clearly demonstrate that Congress intended for the Board to exclude all "other costs" not specified in the statute as requiring consideration in the interchange transaction fee standard. That Congress could have used other, more definitive language, as the Board argues, see Def.'s Mem. at 18-19, is irrelevantwhen its statutory import is nonetheless clear.36

36 See Locke, 471 U.S. at 95 ("[T]he fact that Congress might have acted with greater clarity or foresight does not give courts a carte blanche to redraft statutes in an effort to achieve that which Congress is perceived to have failed to do."); Brown v. Gardner, 513 U.S. 115, 118 (1994) ("Ambiguity is a creature not ofdefinitional possibilities but of statutory context ...."); 

### S. Cal. Edison Co. v. FERC, 195 F.3d 17,24 (D.C. Cir. 1999) ("[T]he courthas repeatedly rejected the notion that the absence ofan express 40"[When] the agency has eitherviolated Congress'sprecise instructions or exceeded the statute's clearboundaries then, as Chevron puts it, 'thatis the end ofthe matter'-the agency's interpretation is unlawful." Vill. of Barrington, Ill. v. Surface Transp. Bd., 636 F.3d 650, 660 (D.C. Cir. 2011) (quoting 467 U.S. at 842). 37 And it is quite clearthat the statute did not allow the Boardto considerthe additional costs factored into the interchange fee standard-i.e., (1) fixed ACS costs, (2) transaction monitoring costs, (3) an allowance for an issuer's fraud losses, and (4) networkprocessing fees. 76 Fed. Reg. at 43,429-31. How so? (1) FixedACS Costs. The final interchange fee standard includes total transaction processing costs, including costs reported as variable and fixedACS costs, within allowable interchange fees. !d. at 43,429. Instead ofciting statutory text tojustify this interpretation ofthe law, the Board simply notedthat it is administratively difficultto discern a transaction's incremental ACS costs. See id. at 43,426-27; Def.'s Mem. at 32- proscription allows an agency to ignore aproscription implied by the limiting language of a statute[.]"); Engine Mfrs. Ass'n v. EPA, 88 F.3d 1075, 1088 (D.C. Cir. 1996) ("[I]f[the text] clearly requires a particular outcome, then the mere fact that it does so implicitly ratherthan expressly does not mean that it is 'silent' in the Chevron sense."). 37 Moreover, Chevron step two is not implicated whenever a statute does not expressly negate the existence ofa claimed administrative power, as the Boardwould have me believe. Rather, "it is only legislative intent to delegate such authority that entitles an agency to advance its own statutory construction for review under the deferential second prong ofChevron." City ofKan. City, Mo. v. Dep'tofHous. & Urban Dev., 923 F.2d 188, 191-92 (D.C. Cir. 1991);Ethyl Corp. v. EPA, 51 F.3d 1053, 1060 (D.C. Cir. 1995) ("We refuse, once again, to presume a delegation ofpower merely because Congress has not expressly withheld such power."). Put simply by plaintiffs, "[t]here is no indication in the Durbin Amendment's text, purpose, or legislative history that Congress meant, by carefully delineating the cost factors that the Board must consider and not considerin setting an interchange fee standard, to delegate to the Boardby whatit didnotsaythe unbounded discretion to consider any other cost factor relating to a debit card transaction." Pis.' Mem. at 37. 4133, 41. But Congress instructed the Board to consider only variable ACS costs incurred for the issuer's role in processing aparticular transaction. See supra pp. 32-33. The legislative mandate to consider incremental ACS costs in setting the interchange standard is not a "minimum," as the Board argues, see Def.'s Mem. at 29, butrather a ceiling. The fact that "there is simply no bright line test to identify exactly ACS versus non-ACS costs," id. at 33, or that the Board "provided a reasoned explanation for considering certain fixed costs and excluding others," id. at 30, does not empowerthe Board to flout the statute and then brandish its Chevron defense. See Chevron, 467 U.S. at 843-44; Vill. of Barrington, 636 F.3d at 659-60. The Board's inclusion offixed ACS costs in the interchange transaction fee standard was impermissible. 

### (2) Transaction Monitoring Costs. The Board also included transaction monitoring costs-i.e., the costs offraud-prevention activities that authenticate the cardholder and confirm whether a debit card is valid38-inthe final standard because such costs are related to the authorization ofaparticulartransaction. 76 Fed. Reg. at 43,430-31. But accordingto the statutory language and the final Conference Report, Congress allowed for fraud-prevention costs only as aseparate adjustment to, rather than

a component of, the interchange transaction fee standard, and only 

### if the issuer complies with fraud-related standards established by the Board. See § 1693o-2(a)(5)(A); supra pp. 11-12, 36-37. In fact, subsection (a)(5)'s adjustmentto the interchange fee for fraud38 In both its NPRM and Final Rule, the Board classified transaction monitoring as fraudprevention activity. See 75 Fed. Reg. at 81,741 ("[I]ssuers engage in avariety offraudprevention activities

.... such as transaction monitoring[.]"); 76 Fed. Reg. at 43,397 ("The most commonly reported fraud-prevention activity was transaction monitoring."). 42prevention costs was the subject ofa distinct rulemaking. See 77 Fed. Reg. 46,258; 12 C.P.R. §235.4; supra notes 9, 19 and accompanyingtext. Although the Boardrecognizes that the plain language ofsubsection (a)(5)(A) provides a separate adjustmentto the interchange transaction fee standard for fraudprevention costs, it nonetheless takes the position that the statute does not prohibit the consideration ofthose costs when setting the interchange fee standard. See Def.'s Mem. at 43. No so. Itwould be nonsensical for Congress to make fraud-prevention costs the basis for a conditionaladjustmentto the interchange fee standard, and at the same time implicitly allow for fraud-prevention costs to factor into the standard itselfwithout any conditions being met. To the contrary, by linking the fraud-prevention adjustment with a statutory requirement that the issuer comply with fraud-related standards, Congress soughtto prevent what the Board has allowed: rewarding every issuer with an interchange fee increase to cover fraud-prevenfion costs, regardless ofwhetherthe issuer complies with the fraud-related standards established under subsection (a)(5)(B). As Senator Durbin explained in a comment letter, "The current system ofnetworkestablished interchange fees creates precisely the wrong incentives for issuers when it

comes to fraud prevention" because "[u]nderthe current system, all issuing banks in a network receive the same network-established interchange fee rates" regardless of whetherthey minimize actual fraud. Durbin Comments, supra note 5, at 9. "In contrast to the current inefficient system, [15 U.S.C. §1693o-2(a)(5)] will incentivize regulated

43issuing banks to reduce fraud by allowing banks that take successful fraud prevention . . d . h fi " 'd 39 steps to receive mcrease mterc ange ees. 1,

. 

### (3) Allowance for FraudLosses. The Board also included an allowance for fraud losses, or "losses incurred by the issuer, otherthan losses related to nonsufficient funds, that are notrecovered through chargebacks to merchants or debits to or collections from customers," such as losses associated with lost, stolen, or counterfeit card fraud. !d. Not proposed for inclusion as an allowable cost in its NPRM, the Board concluded that fraud losses shouldbe considered within the final interchange transaction fee standard because they "are generally the result ofthe authorization, clearance, and settlement ofan apparently valid transaction that the cardholder later identifies as fraudulent." !d. (emphasis added). Butthe costs associated with the consequence ofACS-as opposedto ACS costs themselves-arenotto be considered under the plain language ofthe statute. The Board's decision to "[p]ermit[] issuers to recover at least some fraud losses through interchange fees

... given that the source offraud could be any participant in an electronic debit transaction and that the exact source offraud often is unknown," 76 Fed. Reg. at 43,431, is a blatant act ofpolicymakingthat runs counterto Congress's will. 

### (4) NetworkProcessing Fees. Finally, the Board included network processing fees in the interchange fee standard because they are incurred for the issuer's role in ACS and are specific to a particulartransaction. 76 Fed. Reg. at 43,430. Again, this ignores

39 The Boardtries to distinguish transaction monitoring from the types ofactivities considered underthe separate fraud-prevention rulemaking, thereby rationalizing the inclusion oftransaction monitoring costs in the interchange fee. See 76 Fed. Reg. at 43,431. Butthe statute provides no basis for this distinction. 44the plain language ofthe statute, which demonstrates that Congress did not intend for network fees to be incorporated into the interchange transaction fee standard. Underthe statute's definitional provisions, a "network fee" is "any fee charged and received by a payment card network with respect to an electronic debit transaction, other than an interchange transactionfee." § 1693o-2(c)(l0) (emphasis added). Furthermore, subsection (a)(4)(B)(i) ofthe statute limits the Board's authority to permitrecovery of issuer costs to those incurred "forthe role ofthe issuer," notthe network, in processing a transaction. § l693o-2(a)(4)(B)(i) (emphasis added); see supra p. 32-33. Last, subsection (a)(8)(B) states thatthe only authority Congress granted the Boardto issue regulations regarding network fees is "to ensure that "(i) a network fee is not used to directly or indirectly compensate an issuer with respect to an electronic debit transaction; and (ii) a network fee is not used to circumvent or evade the restrictions ofthis subsection and regulations prescribed under such subsection." 

### § 1693o-2(a)(8)(B). Thus, the interchange fee cannotbe used to compensate an issuer for network fees. Ultimately, the Board asserts that it was given broad discretion to fill statutory gaps in establishing the interchange transaction fee standard. See Def.'s Mem. at 23-26. But even ifthis were true, which it is not, such discretion does not give the Boardthe authority to ignore the expressed will ofCongress. See Bd. of Governors oftheFed. Reserve Sys. v. DimensionFin. Corp., 474 U.S. 361, 374 (1986) ("The statute may be imperfect, butthe Boardhas no powerto correct flaws that it perceives in the statute it is empowered to administer. Its rulemakingpower is limitedto adopting regulations to carry into effectthe will ofCongress as expressed in the statute."); Ry. LaborExecs. 45Ass'n, 29 F.3d at 671 ('"Congress has directly spokentotheprecise question at issue' in this case ... so there is no gap for the agency to fill." (citation omitted)). By including in the interchange fee standard costs that are expressly prohibitedbythe statute, the final regulation represents a significantprice increase overpre-Durbin Amendmentrates for small-ticket debittransactions underthe $12 threshold. See 7-Eleven Amicus Br. at 17- 18; see also DurbinAmicus Br. at 23 ("[B]y setting a high fee capthat far exceeds the customary fees levied on small tickettransactions, the [Board] has given its regulatory blessing to the setting ofinterchange rates by Visa and MasterCard that are overthree times largerthan rates previously charged on small dollartransactions."). Congress did not empowerthe Boardto makepolicyjudgmentsthat would result in significantly higher interchangerates. Accordingly, the Board's interpretation ofthe interchange fee standard is foreclosed by the law and mustbe invalidated under Chevron's first step. 

### III. The NetworkNon-Exclusivity Regulation Is Invalid Under the APA. Subsection (b)(1)(A) oftheDurbin Amendment directs the Boardto issue regulations prohibiting issuers and networks from "restrict[ing] the number ofpayment card networks onwhich an electronic debit transaction may beprocessed"to one network

ormultiple affiliated networks. § 1693o-2(b)(l)(A). Subsection (b)(l)(B), meanwhile, instructs the Boardtopromulgateregulations thatprohibit issuers and networks from "inhibit[ing] the ability ofanyperson who accepts debit cards for payments to directthe routing ofelectronic debittransactions for processing over any payment card network that mayprocess suchtransactions." § 1693o-2(b)(l)(B). The Board determined that subsection (b)(l)(A)requires issuers and networks to make available two unaffiliated 46networks for each debit card, not for each methodof authentication (signature and PIN). 12 C.P.R.§ 235.7(a)(2) & Official Cmt. 1; see also 76 Fed. Reg. at 43,404,43,447-48. Plaintiffs argue that this interpretation disregards the statute's language and purpose, which require that merchants be given a choice between multiple unaffiliated networks not only for each card, but for each transaction. They say that the Board's nonexclusivity regulation cannot survive Chevron step one because it contravenes both the letter and spirit ofthe Durbin Amendment. The Board characterizes plaintiffs' arguments

as being "unmoored from the statutory text," which the Board says is ambiguous on this issue. Moreover, the Board claims that its interpretation ofthe law is permissible and fully implements Congress's directive. I disagree. Theplaintiffs' interpretation is, in my judgment, the one true to Congress's intent. How so? A. The Statute Requires that Merchants Be Provided with a Choice Between Multiple Unaffiliated Networks for Each Transaction. First, the Court must determine "whether Congress has directly spoken to the precise question at issue," Chevron, 467 U.S. at 84, by consideringwhether "the statute unambiguously forecloses the agency's interpretation, and therefore contains no gap for the agency to fill," Nat 'l Cable & Telecomms. Ass 'n v. BrandX Internet Servs., 545 U.S. 967, 982-83 (2005). In determining whether Congress has spoken to the issue, the Court, ofcourse, begins with the plain meaning ofthe statutory text. S. Cal. Edison, 195 F.3d at 23. The language ofthe network non-exclusivity provision favors the plaintiffs' interpretation at Chevron step one. First, there is no question that subsection (b)(1)(A)
47mandates that "an issuer orpayment card network shall not ...restrict the number of payment card networks on which an electronic debit transaction may be processed" to fewer than two unaffiliated networks, and that the Board mustpromulgate regulations to enforce this restriction. § 1693o-2(b)(l)(A) (emphasis added); see Zivotofsky v. Secyof State, 571 F.3d 1227, 1243 (D.C. Cir. 2009) ("'Shall' has long been understood as 'the language ofcommand."' (citation omitted)). Put differently, the statute instructs the Boardto ensure that issuers and networks stop restricting merchants' ability to route each transaction over different networks. Congress's focus was on the number ofnetworks

overwhich each transaction-as opposed to each debit card-canbe processed. Although the Board admits that the statute calls for debit cards to be able to function overtwo ormore unaffiliated networks, it insists thatthe law is silent as to whether merchants musthave routing choices for each transaction. Def.'s Reply to Pis.' Reply Mem. in Supp. ofPis.' Mot. for Summ. J. and in Opp'nto Def.'sMot. for Summ. J. ("Def.'s Reply") at 31 [Dkt. 

### # 32]. Congress resolved this uncertainty, however, by using the statutorily defined term "electronic debit transaction." See§ 1693o-2(c)(5) (defining "electronic debittransaction" as "atransaction in which a person uses a debit card"); id. § 1693o-2(c)(2)(A) ("debit card" defined as "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"). When the definitions are read into the statute, subsection (b)(1)(A) provides that networks and issuers "shall not ... restrict the number ofpayment card networks [to process] 'a transaction in which a person uses [any card

... issued or approved for use through a payment card network to 48debit an asset account ...whether authorization is basedon signature, PIN, or other means]"'to less than twounaffiliated networks. Theplain text ofthe statute thus supports the conclusion that Congress intended for each transaction to berouted over at leasttwo competingnetworks for each authorization method. Indeed, the Durbin Amendment's legislative history confirms my reading ofthe statute. Itis axiomatic when interpreting a Congressional statute thatthis Court must consider, among otherthings, the problem Congress sought to resolve when it adopted the law at issue. PDKLabs. Inc. v. DEA, 362 F.3d 786, 796 (D.C. Cir. 2004). Even whenthe statute's plain meaning is clear from its terms, legislative history can be "equally illuminating." PlannedParenthoodFed'n of Am., Inc. v. Heckler, 712 F.2d 650, 656-57 (D.C. Cir. 1983). As SenatorDurbin explained, the Amendment was enacted at a time when network fees were on the rise due to exclusivity deals between dominant card networks and issuers.40 Total network fees exceeded $4.1 billion in 2009, 76 Fed. Reg. at 43,397, due in large partto the lack ofcompetition resulting from exclusivity agreements. As the Board explained in its NPRM:

40 See 156 Cong. Rec. S10,996 (daily ed. Dec. 22, 2010) (statement ofSenatorRichard J. Durbin) ("Inrecent years ...the biggest networks like Visa have begun requiring banks to sign exclusive agreements under which they become the sole network on the banks' cards. This diminishes competition between networks and leads to higherprices. My amendment will restore this competition."); see also Durbin Comments, supra note 5, at 11 ("This trendtoward exclusivity agreements ... limits merchant and consumer choice; it diminishes competition bythreatening to drive competing debit networks out of business; and it creates significantbarriers to entry for new debit networks." (citation and internal quotation marks omitted)). 49Fromthe merchantperspective, the availability ofmultiple card networks on a debit card is attractive because it gives merchants the flexibility to route transactions overthe network that will result in the lowest cost to the merchant. This flexibility may promote direct price competition among the debit card networks that are enabled on the debit card. Thus, debit card network exclusivity arrangements limit merchants' ability to route transactions over lower-cost networks and may reduce price competition. 75 Fed. Reg. at 81,748. Congress adoptedthe network non-exclusivity and routing provisions "to inhibit the continued consolidation ofthe dominant debit networks' market power and to ensure competition and choice in the debit network market." Durbin Comments, supra note 5, at 11; see also 156 Cong. Rec. S5,926 (daily ed. July 15, 2010) (statement ofSen. Richard J. Durbin) ("All these provisions say is that [f]ederallawnowblocks payment card networks from engaging in certain specific enumerated anti-competitive practices, and the provisions describe precisely the boundaries overwhich payment card networks cannot cross with respectto these specific practices."). Itis clearthat Congress intended to put an end to exclusivity agreements and increase merchants' choice among debitprocessing networks, not restrict that choice or even preserve the status quo. Accordingly, it defies both the letter and purpose ofthe Durbin Amendmentto read the statute as allowing networks and issuers to continue restricting the number of networks onwhich an electronic debit transaction may be processed to fewer than two pertransaction. Indeed, priorto the Amendment'spassage, SenatorDurbin explicitly confirmed that Congress wanted subsection (b)(I)(A) to ensure the availability ofat least two competing networks for each method ofcardholder authentication on which an electronic debit transaction may be processed: 50This paragraph is intendedto enable each andeveryelectronic debit transaction-nomatterwhether that transaction is authorizedbysignature, PIN, or otherwise-tobe run over at leasttwo unaffiliated networks, and the Board's regulations should ensure that networks orissuers do not try to evade the intent of this amendment byhavingcards thatmay run on only two unaffiliatednetworks where one of those networks is limitedand cannot be used for many types of transactions. 156 Cong. Rec. S5,926 (daily ed. July 15, 2010) (statement ofSen. Richard J. Durbin) (emphases added). In short, Congress adopted the network non-exclusivity and routing provisions to ensure that for multiple unaffiliatedrouting options were available for each debit card transaction, regardless ofthemethod ofauthentication. The Board'sFinal Rule not only fails to carry out Congress's intention; it effectively countermands it! B. The Board's NetworkNon-Exclusivity Regulation Is Inconsistentwith the Statute. The Board'snetwork non-exclusivity regulation requires at leasttwo unaffiliated payment card networks be enabled on each debit card, meaningthat a card complies with the regulation ifit has been enabled with only one PIN network and one signature network. 12 C.F.R. 

### § 235.7(a)(2) & Official Cmt. 1; see also 76 Fed. Reg. at 43,447-48. Accordingto the Board, "[t]he plain language ofthe statute does notrequire thatthere by two unaffiliatedpayment cardnetworks available to the merchant for each method of authentication." 76 Fed. Reg. at43,447. I disagree. The Board's interpretation ofsubsection (b)(l)(A) cannot be reconciled with the plain meaning or spirit ofthe statute because it still allows networks and issuers to make only one network available for many transactions. Indeed, by the Board's own admission, several common transaction types cannotbe authenticated using the PIN
51method, leaving signature-debit as the only available option. See 76 Fed. Reg. 43,395. "[H]otel stays or carrentals," not to mention "Internet, telephone, and mail transactions,"

are typically incompatible with PIN authorization technology. 

### !d. Under a rule that allows issuers toprovidejustone signature network and one PIN networkper card, merchants in these signature-only industries are left with no network options. See 75 Fed. Reg. at 81,748. This result cannotbe reconciled with Congress's goal ofproviding all merchants with a choice between multiple unaffiliated networks for every transaction. The Board contends that where a merchant canprocess both signature and PIN transactions, the customer determines the authentication method at the point ofsale by choosing "debit" for PIN authentication or "credit" for signature authentication. 76 Fed. Reg. at 43,448. In this scenario, the Board says that its network non-exclusivity rule technically provides for multiple available networks, but "the consumer, and notthe issuer orthe payment card network,

...restrict[s] the available routing choices" for the merchant. 

### !d. The Board forgets, however, that it is issuers and networks who establish the availability ofdifferent routing options, well before consumers ever enterthe picture. And the Board cannot be relieved ofits statutory obligation to ensure that networkand issuerpractices do not inhibit merchant choice simply because, in many transactions,

consumers choose the authentication method. In the end, any reading that denies merchants the ability to choose between multiple networks for each transaction cannotbe squared with a statute thatplainly requires at least two networks pertransaction. The Board's network non-exclusivity regulation is also inconsistent with other related statutory provisions. For example, subsection (b)(1 )(B) instructs the Board to 52establishregulations thatbar issuers and networks from "inhibit[ing] the ability ofany person who accepts debit cards for payments to direct the routing ofelectronic debit transactions for processing over any payment card network that may process such transactions." § 1693o-2(b)(l)(B). This sisterprovision to subsection (b)(l)(A) makes

sense only ifmerchants have a choice between multiple networks. Itwould defY all logic for Congress to safeguard merchants' ability to route transactions overthe networks of their choosingwhile atthe sametime leaving it up to the Boardto decide whether issuers give merchants any choice in the first place. See Greenlaw v. UnitedStates, 554 U.S. 237, 251 (2008) ("Weresist attributingto Congress an intention torender a statute so internally inconsistent."); Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 575 (1982) ("Itis true that interpretations ofa statute which wouldproduce absurdresults are to be avoided ifalternative interpretations consistentwith the legislative purpose are available."). Eventhe Boardhas recognizedthat its interpretation ofsubsection (b)(1 )(A) limits the effectiveness ofsubsection (b)(l)(B)underthe Durbin Amendment.41 The Board further defends its network non-exclusivity regulation by pointing out that it is not "the most aggressively pro-merchantposition" that the Board could have taken. Def.'sReply at 27. The Board obviously misses thepoint! Where a court concludes that a statute is unambiguous, an agency's interpretation mustbe rejected ifit is inconsistentwith clearly expressed legislative intent. See Chevron, 467 U.S. at 842- 43; Vill. of Barrington, 636 F.3d at 659-60. Itis not about whetherthe rule favors

41 See 75 Fed. Reg. at 81,749-50 ("[T]he Board notes that Alternative A could limitthe effectiveness ofthe separateprohibition on merchantrouting restrictions under[§ 1693o2(b)(1)(B)]"). 53merchants orissuers; rather, it is about whetherthe rule implements Congress's will. And Congress's use ofclear, defined language in the network non-exclusivity androuting provisions leaves no ambiguity or statutory gap for the agency to fill. See UnitedStates

v. Home Concrete & Supply, LLC, 132 S. Ct. 1836, 1843 (2012) ("Chevron and later

cases find in unambiguous language a clear sign that Congress did not delegate gapfilling authority to an agency[.]"). Lastly, the Boardnoted that its two-networks-per-card approach "minimiz[es] the compliance burden on institutions" and "present[s] less logistical burden on the payment system overall as it wouldrequire little ifany re-programming ofrouting logic" than would a rule requiring two networks for each paymenttype. 76 Fed. Reg. at 43,447. That might be the case, butthe law does not impose those burdens. In fact, the Durbin Amendmentdoes not specifyhow the Board should go about achieving the statute's requirement. Itwas possible for the Boardto implementthe law without requiring brand

new networks be added to each card. As explained during the commentperiod on the NPRM, the Board could have guaranteed "multiple routing options for every transaction by barring the dominant networks' anti-competitive rules to allow PIN-only networks to process signature transactions, and vice versa." Pl.'s Mem. at 51.42 In otherwords, the Board couldhave required networks to allow cross-routing ofsignature and PIN

42 See, e.g., AdamJ. Levitin, Comments in Response to Notice of ProposedRulemaking on Debit CardInterchange Fees andRouting at 2-3 (Feb. 22, 2011) ("I would suggest thatthe Board also be explicit in permitting PIN debit networks toprocess signature-debit transactions as long as the merchant and/ornetwork is willing to assume the chargeback risk

. . . . Restricting limitations on cross-routing on debit cards between PIN and signature debit networks would enhance the competition among networks for processing transactions, which is preciselythe goal ofthe Durbin Interchange Amendment."). 54transactions, thereby ensuringthat each debit cardhad multiple unaffiliated dual message network options on which every type ofdebit transaction couldbe processed. The Board chose insteadto adopt a different approach-onethat, unfortunately, is inconsistentwith the statute. The final network non-exclusivity regulation therefore cannot standunder Chevron step one. See Catawba Cnty., 571 F.3d at 35. 

### IV. The Appropriate Remedy Is Vacatur and Remand, Staying Vacatur. The Court concludes thatthe properremedy here is toremandto the Boardwith instructions tovacatetheBoard's interchange transaction fee (12 C.F.R. § 235.3(b)) and network non-exclusivity (12 C.F.R. § 235.7(a)(2)) regulations. See 5 U.S.C. § 706(2) (directingthat a court "shall

... set aside agency action

... found to be arbitrary, capricious

... orotherwisenot in accordance with law."). Although I recognize that vacaturis notrequired by ourCircuit,Advocates forHighway & Auto Safety v. Fed. Motor CarrierSafetyAdmin., 429 F.3d 1136, 1151 (D.C. Cir. 2005), I conclude thatboth factors tobe considered when deciding whetherto vacate-(1) "the seriousness ofthe [regulation's] deficiencies" and (2) "the disruptive consequences ofan interim change that may itselfbe changed,"Allied-Signal, Inc. v. U.S. NuclearRegulatory Comm 'n, 988 F.2d 146, 150-51 (D.C. Cir. 1993) (citation omitted)--weigh in favor ofvacatingthe specifiedregulations before remanding to the Board. First, the interchangetransaction fee and networknon-exclusivity regulations are fundamentally deficient. Itappears thatthe Board completely misunderstood the Durbin Amendment's statutory directive and interpreted the law in ways that were clearly foreclosed byCongress. Because "[t]he Courtcannotbe surethatthe agency will 55interpretthe statute in the same way and arrive at the same conclusion after further review,"Int'lSwaps &DerivativesAss 'n v. US. CommodityFutures Trading Comm 'n, No. 11-2146, 2012 WL 4466311, at *25 (D.D.C. Sept. 28, 2012), let alone whether, "on furtherjudicialreview, this or a similar Final Rule will withstand challenge underthe 

### APA," Humane Soc'y ofUS. v. Kempthorne, 579 F. Supp. 2d 7, 21 (D.D.C. 2008), this factor weighs heavily in favor ofvacatur. Second, any disruptive effect ofvacatur can be curtailed by a stay. This Court is mindful that interchange and network fees are critical components ofthe debit card system, and that the Board'sFinal Rule has been in effect since October 1, 2011, such that regulated interests have already made extensive commitments in reliance on it.43 But in light ofthe seriously deficient nature ofthe regulations at issue, and the fact thatthe Board must develop entirely new rules to correctthese errors, remand without vacatur would be inappropriate here. Compare Fox Television Stations, Inc. v. FCC, 280 F.3d 1027, 1048 (D.C. Cir. 2002) (vacatur appropriate ifrule is "irredeemable"), with WorldCom, Inc. v. FCC, 288 F.3d 429, 434 (D.C. Cir. 2002) (where there is a "non-trivial likelihood" that agency couldjustifyrule on remand, vacatur is not necessary). I will stay vacatur, however, toprovide the Board an opportunity to replace the invalid portions

43 See Ronald M. Levin, "Vacation" atSea: JudicialRemedies andEquitableDiscretion inAdministrativeLaw, 53 Duke L.J. 291, 300 (2003) ("Frequently, when a rule is held invalid after it has already gone into effect, private citizens will already have arranged their expectations around it. Companies may have entered into contracts, made capital investments, and shiftedbusiness operations in light ofthe rule."); MCI Telecomms. Corp. v. FCC, 143 F.3d 606, 609 (D.C. Cir. 1998) ("Here, vacating the order would leave payphone service providers all but uncompensated for coinless calls made from their payphones, and disrupt the business plans they have made on the basis oftheir expectation ofcompensation."). 56ofthe Final Rule. In so doing, I canpreventthe Board from adopting similarregulations while at the same time avoid the disruption ofvacating the entire regime. SeeAnacostia Riverkeeper, Inc. v. Jackson, 713 F. Supp. 2d 50, 55 (D.D.C. 2010) (although pollution limits promulgatedbyEPAwere inconsistent with Clean WaterAct and thus invalid, vacatur stayed pending limits' revision because "neitherthe Court, northe parties, wants the

...waters at issue in this action to go withoutpollutant limits while EPA develops

newpollutantlimits, which will obviously take sometime"). Toproperly effectthe stay ofvacatur, two issues remain: (1) the appropriate length ofthe stay; and (2) whether current standards should remain in place until they are replaced by valid regulations orthe Board should develop interim standards sufficientto allowthe Courtto lift the stay. See, e.g., Friends of the Earth, Inc. v. EPA, 446 F.3d 140, 148 (D.C. Cir. 2006); CementKiln Recycling Coal. v. EPA, 255 F.3d 855, 872 (D.C. Cir. 2001); Columbia FallsAluminum Co. v. EPA, 139 F.3d 914, 924 (D.C. Cir. 1998); AnacostiaRiverkeeper, 713 F. Supp. 2d at 52-55. Becausetheparties failed to address the properremedy in their motions, the Court will invite supplemental briefing on these issues, keeping in mind that I am inclined toward a stay ofvacatur "formonths, not years,"NaturalRes. DefCouncil v. EPA, 489 F.3d 1250, 1265 (D.C. Cir. 2007) (Rogers, J., concurring in part and dissenting in part) (citations omitted). CONCLUSION Forthe foregoing reasons, the Court GRANTS plaintiffs' Motion for Summary Judgment and DENIES defendant's Cross-Motion for SummaryJudgment. Accordingly, the Court will vacate the interchange transaction fee (12 C.F.R. 

### §235.3(b)) and network 57non-exclusivity (12 C.F.R. § 235.7(a)(2)) regulations, staying vacaturuntil further Order ofthis Court, and will remandto the Board for further proceedings consistentwith this Memorandum Opinion. An appropriate order shall follow. 

# M/**.~**

# RICH~ United States DistrictJudge

58