A federal appeals court ruled on Monday that the Federal Reserve set its cap on debit card "swipe fees" too high, upholding a lower court decision that struck the 21-cent cap down and ordering the Fed to write a new, lawful rate. A three-judge panel of the U.S. Court of Appeals for the Eighth Circuit affirmed last year's ruling in the case brought by Corner Post, a North Dakota truck stop and convenience store, finding that the Fed counted costs Congress never allowed it to count when it set the fee.
The fee at the center of the case is one most shoppers never see. Every time a customer pays with a debit card, the store pays an "interchange fee" to the bank that issued the card, as the price of processing the payment. Merchants have argued for years that those pennies on every purchase add up to billions of dollars a year, and that the cost is built into the prices everyone pays at the register — whether they pay by card or in cash.
Congress took up the issue in 2010, adding the Durbin Amendment to the Dodd-Frank financial law. It says debit card fees charged by large banks must be "reasonable and proportional" to what it actually costs the bank to process that transaction. The Federal Reserve wrote the rule in 2011: banks with more than $10 billion in assets may collect a maximum of 21 cents per transaction, plus 0.05% of the purchase amount, plus an extra penny for fraud prevention. The Fed had first proposed a cap of 12 cents before settling on 21 — and the 21-cent figure then stayed unchanged for 15 years, even as the banks' own processing costs fell.
Corner Post, in Watford City, North Dakota, sued the Fed in 2021, arguing the cap was far higher than the law allows. Last year, U.S. District Judge Daniel M. Traynor agreed and threw the rate out. The statute, he found, allows the Fed to count two — and only two — categories of cost, and the Fed had quietly added a third, made up of banks' broad fixed costs, in a way that shifted billions of dollars from merchants to card issuers. "Congress did not hide an 'easter egg' of a third cost category in the Durbin Amendment," Traynor wrote, "particularly when those additional costs would benefit banks at the expense of merchants and consumers." His ruling was put on hold while the Fed appealed.
The appeals court has now backed him in full. Writing for the panel, Judge David Stras said the Fed built its cap on fixed costs that do not change from one swipe to the next — among them fixed costs of authorization, clearance and settlement, network processing fees, fraud-monitoring costs and fraud losses — while the law speaks of the incremental cost of each individual transaction. "The clearest sign of regulatory drift was the flat 21-cent cap because it applied to every transaction, no matter its cost," the court wrote. The Fed, it said, "must sort the costs into those that are transaction-specific and those that are not" — "not just pick a number and hope it is close enough for government work." And it added: "No matter how much some banks and payment networks disagree with approaching the problem this way, the Federal Reserve does not get to revise Congress's work." The court stressed the new fee does not have to match the cost of each swipe exactly — the Fed may use a reasonable proxy, such as average variable cost — but it must be tied to the costs of processing transactions, not to banks' general overhead.
So the 2011 rate has been struck down, and the job of writing a lawful one goes back to the Federal Reserve. The court set no replacement number, and the ruling takes effect when the court issues its mandate. The Fed could still ask the Supreme Court to take the case; whether it will was not immediately clear on Monday, and a Fed spokesperson said the agency had no comment on the ruling. The Fed also has unfinished business of its own in this area: in 2023 it proposed cutting the base cap from 21 cents to 14.4 cents, but it never made that proposal final.
Merchants, who have fought the fee for more than a decade, claimed the ruling as a major win. "Two courts have now agreed that the current rate lets banks collect billions of dollars a year more from stores and their customers than the law ever meant for them to have — far more than it takes to cover their costs and earn a healthy profit," said Doug Kantor of the Merchants Payments Coalition, urging the Fed to replace the rule promptly rather than keep defending it. The grocery industry agreed: FMI, the food industry association, called the decision "an important victory for grocery customers and food retailers," noting that the Fed's own data shows banks' processing costs have fallen substantially while the rate charged to merchants never moved.
Credit unions reacted with alarm. The Defense Credit Union Council said it was disappointed, warning that a lower cap threatens affordable banking services and fraud prevention, particularly for military families. "A secure debit transaction requires infrastructure, fraud monitoring, network connectivity, and ongoing investment," said the council's Jason Stverak. "Those costs do not disappear because a court limits which ones may be reflected in an interchange standard." Unlike banks, the group noted, credit unions are member-owned, and it argued the merchants' focus on the biggest banks leaves credit unions and their members out of the story.
What is certain is that the number will change, and the fight now moves to the Federal Reserve, which must decide how low the lawful rate goes. For banks, a lower cap means less income from every debit purchase in America. For stores, it means relief from a cost they say has been quietly lifting shelf prices for years. And for shoppers, the stakes are the pennies folded into the price of groceries, fuel and everything else they buy — small on any single receipt, and worth billions of dollars a year across the country.
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