The Eighth U.S. Circuit Court of Appeals on Monday struck down the Federal Reserve’s 15‑year‑old regulation that capped debit‑card interchange fees, ruling the central bank exceeded its authority in deciding which costs banks may include when setting the cap.
What the rule did and why the court rejected it
Congress enacted the Durbin Amendment as part of the 2010 Dodd‑Frank Act and directed the Fed to limit the fees banks can collect on debit transactions to reasonable and proportional incremental costs for authorizing, clearing and settling those transactions. Under the Fed’s 2011 implementation, institutions with more than $10 billion in assets generally could collect a base fee of $0.21 per debit transaction, plus 0.05% of the transaction amount and an extra $0.01 for fraud prevention.
The Eighth Circuit concluded the Fed failed to properly define the required incremental costs and improperly allowed other expenses to be included in the fee calculation. The court therefore ordered the Fed to rewrite the regulation to conform to Congress’s instructions.
Who brought the case and how it progressed
- The lawsuit was brought by Corner Post, a North Dakota convenience store and truck stop that challenged the Fed’s interpretation and implementation of the Durbin Amendment.
- The appeals court’s decision follows an Aug. 2025 ruling by U.S. District Judge Daniel Traynor that invalidated the regulation; that decision had been stayed while the Fed appealed in Oct. 2025.
Implications for banks, credit unions and merchants
The ruling introduces legal and regulatory uncertainty for large financial institutions and payment networks because it could force the Fed to narrow which costs may be recovered through interchange. Merchants, which long have argued the existing cap permits banks to collect excessive fees, welcomed the decision. Banking groups have argued that debit processing involves substantial underlying costs that must be recovered.
The Durbin Amendment exempts institutions with less than $10 billion in assets from the federal cap, so the decision is especially consequential for larger credit unions and banks that currently fall under the Fed’s rule.
Background: Fed proposal and next steps
In Oct. 2023 the Fed proposed lowering the base debit interchange cap from $0.21 to $0.144 (14.4 cents) and suggested changes to the fraud‑loss and fraud‑prevention components. That proposal has not been finalized. The appeals court’s order requiring a rewritten regulation could affect any future Fed action and how the central bank calculates acceptable cost items under the Durbin Amendment.
| Component | Fed rule (2011) | Fed proposal (Oct. 2023) |
|---|---|---|
| Base per‑transaction cap | $0.21 | $0.144 |
| Variable fee | 0.05% of transaction | Proposed changes |
| Fraud prevention add‑on | $0.01 | Proposed changes |
The appeals court’s ruling is likely to prompt additional litigation and regulatory work as the Fed considers how to comply with the court’s interpretation of what costs are “incremental” and therefore recoverable. The order could alter the balance between merchant costs and bank interchange revenue, particularly for larger banks and credit unions subject to the cap.
- Legal history: District court invalidation in Aug. 2025; Fed appealed Oct. 2025; Eighth Circuit decision issued Oct. 26, 2026.
- Who it affects: Financial institutions with assets above $10 billion, large credit unions, merchants that accept debit cards, and the Federal Reserve’s rulemaking process.
