Bloomberg News

A senior official on the Board of Governors of the Federal Reserve wants to better understand recent Supreme Court decisions before the central bank changes its capping interchange fees per debit.

Speaking on stage Tuesday at the Clearing House annual conference, Fed Governor Christopher Waller said he would like to better understand the high court’s decisions in Loper Luminous Businesses v. Raimondo and Corner post Inc., against the Federal Reserve before the Fed moves forward with its update of regulation II.

“The legal uncertainty around things now, with Chevron, Corner Post, all the legal matters, for me…I would like a little more clarity on how the courts are going to interpret things, like how we interpret Reg II, before introducing a significant new proposal or a new step,” Waller said. “I would like to see how quickly this happens.”

Loper Luminous overturned the legal precedent known as Chevron deference, in which courts were instructed to defer to the agency on questions of interpreting unclear statutes. Corner Post has already extended the period during which regulatory rules can be challenged and could have more direct implications for Regulation II. These are two of several cases decided in the Supreme Court’s latest session that are expected to change the way regulations are made and challenged.

Corner Post is a North Dakota truck stop challenging Reg II, the Fed’s implementation of the so-called Durbin Amendment to the 2010 Dodd-Frank Act, which called for the Fed to establish a cap on debit interchange fees and collect data on activity in the space.

In October 2023, the Fed proposed a regulatory update that would adjust the various components of the cap. The base tax would increase from 21 cents to 14.4 cents and the ad valorem or percentage-based multiplier component would increase from 5 basis points to 4 basis points. The fraud prevention component would increase slightly.

The agency said the changes would reflect the decline in overall costs that debit card issuers have faced in recent years. Banks and currency traders say Fed policy is based on inaccurate information. They also noted that reduced swipe fee revenue would hamper their ability to offer fee-free accounts to low-income people. Supporters of the proposal say banks could make up for lost revenue by cutting rewards programs.

At the event, Waller said the Fed was still studying the data collected regarding the potential impacts of the proposed changes. Specifically, he said, the agency is trying to understand the correlation between card-not-present transactions and fraud costs.

“All we heard was that it had a different impact on fraud costs than having a card (transactions),” Waller said. “So we’re trying to figure out some of it.”

Waller started the event by giving a speech about faster payments. During these remarks, he outlined his views on the Fed’s role as a payments system operator.

Waller, who chairs the Federal Reserve’s payments committee, said the Fed should only engage in this sector when there are obvious gaps in the market. He said that ideal was at the heart of the Fed’s creation in 1913, after the lack of central clearing contributed to a series of banking panics in the late 19th and early 20th centuries. He said that principle is still in effect with the Fed’s instant payments network, FedNow, launched last summer.

Waller praised the RTP network – the private instant settlement system owned and operated by TCH and its large member banks – but noted that bringing the more than 8,000 banks and credit unions across the country into the Real-time payments space is a task that is solely the responsibility of the government. can accomplish.

“The role we play with FedNow is to help solve this coordination problem using our existing connections with these thousands of institutions,” Waller said. “And this approach is consistent with my overall view of the appropriate role of government: narrowly addressing issues such as coordination that cannot always be effectively addressed by the private sector alone.”

During the event, Waller reiterated his position on central bank digital currency, that it is a solution looking for a problem. He has also endorsed elements of the crypto industry, less for the digital assets it creates, but more for the underlying infrastructure it has created.

“I find it very interesting to see how elements of the crypto world could potentially be imported: blockchain, tokenization, smart contracts. Forget the object that is being exchanged,” he said. “I don’t care if you trade Dogecoin, Bitcoin – I’m more interested in the technology and how that technology can be transferred to traditional, bank-style financing to make it efficient, easier and faster. “

And while it’s important for the Fed to be open to new technologies, Waller said the institution also has an obligation to pay attention to older systems, namely those that are functionally obsolete. He highlighted the Fed’s decision to end its cross-border payments system, FedGlobal ACH, due to declining usage.

Waller said the history of this program also teaches a valuable lesson about how trends in payments don’t always go as planned.

“We started Global ACH about 20 years ago because of this need for better global payments. We put a lot of money into it, we built it and no one used it. Well, we We finally closed it,” Waller said. “We’re not going to run this system for decades and no one uses it. So that’s what I’m saying: Ultimately, we can’t just build systems and if no one uses them , continue to pay them and direct them. At some point you have to cut the cord and put a stop to this.