government, n. – a modern Cronus that devours his own children.
– ‘The Devil’s Dictionary’ by Ambrose Bierce
The 2023-2024 term of the United States Supreme Court is history. If there is any overriding theme of this session, it’s that the current Court has significantly diminished the power of the federal government bureaucracy, vis-à-vis we the people.
I will leave it to others to write about the media high-profile cases that have, at most, only an indirect effect on the lives of us regular folks. Donald Trump’s claim of Presidential immunity, and the First Amendment rights of social media are intellectually interesting — but mean relatively little in the day-to-day lives of working stiffs.
Having grown up in a household supported by our family business, I appreciate the impact of government regulations on the cost of operating a small enterprise.
So that’s why I’m most interested this year in Supreme Court ‘lunch-bucket’ decisions… the ones that directly effect the economic well-being of the middle and working classes who are the backbone of this country, and without whom it would totally collapse.
Last week I wrote about how the Supreme Court overturned a decision by a federal bureaucrat (a bankruptcy judge) that would have protected a family of billionaires from the potential economic consequences of their reprehensible conduct.
This week I write about two cases in which the Court sided with small businesses against big government over-regulation.
The first case, Corner Post, Inc. vs Board of Governors of the Federal Reserve System, is a David v Goliath saga that potentially can benefit all of us. Here are the facts as they appear in the Supreme Court opinion of their decision:
Corner Post is a truck stop and convenience store located in Watford City, North Dakota. It was incorporated in 2017, and in 2018, it opened for business. Like most merchants, Corner Post accepts debit cards as a form of payment. While convenient for customers, debit cards are costly for merchants: Every transaction requires them to pay an “interchange fee” to the bank that issued the card. The amount of the fee is set by the payment networks, like Visa and Mastercard, that process the transaction between the banks of merchants and cardholders. The cost quickly adds up. Since it opened, Corner Post has paid hundreds of thousands of dollars in interchange fees — which has meant higher prices for its customers. ( The emphasis is mine.)
Those customers are the truckers, and others – folks like us – shopping at the Corner Post.
Like the bankruptcy case I wrote about last week, the Corner Post case is a dispute about the interpretation of a federal law. This one is a regulation (reg) promulgated by the Federal Reserve (the Fed) in 2011, following the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 that was supposed to remedy the financial shenanigans that led to the 2008 recession.
That 2011 Fed reg sets the “interchange fees” charged by “payment networks” for debit card transactions. The owners of Corner Post believed the fees authorized by the reg exceeded the amount allowed by the Dodd-Frank Act, and were therefore illegal – so they sued the Fed… (the ‘Creature from Jekyll Island’).
Watford City, is a long way from Jekyll Island. It was just another small rural community on the western plains of North Dakota — until it became a transportation hub for oil being shipped from the nearby Bakken oil reserve.
Most of the oil from the Bakken reserve is transported by truck, and Watford City became a boom town. Businesses related to oil transportation, like the Corner Post truck stop, sprang up.
The Corner Post is an affiliate of a local family-owned oil transport company. So the case pitted a family business from a small midwestern town against the mighty Fed.
At issue before the Supreme Court was whether the Corner Post could even sue the Fed. The suit was brought under the Administrative Practices Act (APA) – a federal statute that (among other things) establishes a procedure for suing the government about regs.
The APA includes a time limitation on when a suit can be filed. According to the Fed, that ‘statute of limitation’ requires any suit about a reg to be filed within six years after the reg is adopted by an agency.
Since the reg was adopted by the Fed in 2011, and the Corner Post had not opened for business (and paid any debit card “interchange fees”) until 2018 — beyond six years after the reg’s adoption — the Fed claimed the suit was ‘time barred’ (meaning past the statute of limitation). Corner Post asserted that there was no way they could have sued any sooner — because they weren’t in business, so the reg had no impact on them.
Let’s think about the Fed’s scenario. You start a business, find out you are required to pay a (possibly illegal) ongoing fee imposed by a government reg — but you can’t sue the government to challenge the legality of the fee, because the reg was created six years before you were even in business.
The practical effect of the Fed’s claim is that an illegal government act becomes legal after the passage of six years. The consequence of that claim, to we the people, is we continue to pay more for things because companies that accept debit cards must charge more to cover the interchange fees paid to credit card companies.
Under the reg the interchange fee is calculated at a flat rate per transaction – plus a percentage of the amount of the transaction. Why the percentage?
The transactions are all electronic. How does it cost the payment network any more to process a larger transaction than a smaller one to justify charging a higher fee?
As the Corner Post case illustrates, businesses increase what they charge customers to cover their cost of the interchange fee to the payment network — which in turn increases the cost at the point of sale, leading to a higher interchange fee on each transaction.
The fees paid to the credit card companies are self-inflating. The self-inflating interchange fee is like an ever-growing cancer on the body of businesses… a cancer that effects not just the business, but we the customers, as well.
It’s government-created inflation, promulgated under a statute entitled the ‘Consumer Protection Act’ which effectively creates an ever expanding revenue stream for the ‘payment networks’, at the expense of the rest of us.
Did Congress really intend that result in ‘Consumer Protection Act’ — or did the Fed exceed the authority given it by that Act? That is what the Corner Post is challenging in their lawsuit.
If that is what Congress intended, then that Act is (in effect) corporate welfare on a massive scale — funded not directly by the government, but by an indirect tax through ever-increasing costs to anyone using a debit card. In what universe does that make sense?
Dodd-Frank was passed by a Democrat-controlled Congress, and signed into law by President Obama — and was acceptable to three Democrat-appointed Justices on the current Supreme Court.
I have a suggestion about what that part of Dodd-Frank is really about. The major credit card companies have, for years, been headquartered in the state of Delaware — which gives tax breaks to financial service companies located there. For years a U.S. Senator from Delaware had a reputation for protecting the interests of those companies in federal legislation. By the time of the Dodd-Frank Act, that Senator had become vice-President. His name is Joe Biden, and now-President Biden’s administration is opposing the Corner Post lawsuit.
Draw your own conclusions.
As I’ve previously written, attributing Supreme Court decisions to political ideology or party affiliation is usually nonsense – but in the Corner Post case, even I can’t ignore one glaring fact. The alignment of the Justices in the decision. The three justices appointed by Democrat presidents (two by Obama, one by Biden) accepted the Fed’s argument that illegal government acts become legal after six years — while the six justices appointed by Republicans rejected that astonishing proposition.
The Court ruled 6-3 in favor of the family-owned Corner Post — and consumers. The Court said the six-year statute of limitation period began to run after Corner Post opened for business and had to start paying the interchange fees, so the family owners of the Corner Post get to pursue their lawsuit to challenge the legality of the debit card fees they are paying.
The Fed lost. David hit Goliath in the head with a rock.
In Part Two I’ll talk about the death of the ‘Chevron Doctrine’… another regulatory case, in which the Supreme Court channeled Professor Van Helsing, by driving a stake through the heart of the federal bureaucratic vampire.