The U.S. Federal Reserve was given a week to tell a federal judge its position on immediately rewriting regulations setting debit card swipe fees after a court found the current rule unlawful.

U.S. District Judge Richard Leon in Washington today ordered Fed General Counsel Scott Alvarez to appear in his courtroom on Aug. 21 after a lawyer for the Fed said it hadn’t made any decisions on how to replace the current rule, or whether to appeal the judge’s ruling.

“They’ve had their briefings,” Leon said. “They know what the state of play is. It’s time to make decisions.”

Earlier in the hearing, Leon laid out a timeline that would put a final interim rule in place by the end of the month. An interim final rule takes effect immediately before any public comments are accepted.

Today’s hearing comes two weeks after retailers battling banks over debit-card transaction costs were handed a victory by Leon in Washington, who said merchants were overcharged billions of dollars under an unlawful swipe fee set by the Fed.

The decision, unless overturned on appeal, will force regulators to revisit rules that bankers said would cost them 45 percent of their swipe-fee revenue. Lenders collected about $16 billion annually from those fees before the Fed’s regulation and responded by cutting back on perks such as rewards programs and free checking to soften the blow to their profits.

In his July 31 ruling, Leon said that the Fed considered data it wasn’t allowed to use under the Dodd-Frank law in setting the cap on debit-card transaction fees, known as swipe fees, at about 21 cents, and neglected to bolster competition in card networks.

Leon is considering whether the Fed’s rule, in effect since October 2011, should remain in place until the central bank drafts new regulations or interim standards.

While noting the Fed has 60 days to appeal his ruling, Leon said he wouldn’t wait that long to make a decision about a new rule.

“I’m not going to sit around and do nothing for 60 days,” Leon said.

The judge also asked lawyers for both sides to submit filings on whether the retailers could be reimbursed for their overcharges.

The case is NACS v. Board of Governors of the Federal Reserve System, 11-cv-02075, U.S. District Court, District of Columbia (Washington).

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