Fed’s Debit Card Swipe Fee Appeal Hinges on Permitted Bank Costs

Here’s a comprehensive breakdown of where this litigation stands and what’s at stake.

The Core Legal Fight

The appeal in Corner Post, Inc. v. Board of Governors of the Federal Reserve System before the U.S. Court of Appeals for the Eighth Circuit turns entirely on a statutory interpretation question: which bank costs did Congress actually permit the Fed to consider when setting the debit interchange fee cap under the Durbin Amendment?

In August 2025, U.S. District Judge Daniel Traynor vacated Regulation II — the Fed’s 2011 rule capping debit swipe fees at 21¢ plus 5 bps — finding the Fed exceeded its statutory authority. The vacatur was immediately stayed pending appeal to prevent an unregulated marketplace.

The Four Disputed Cost Categories

The Durbin Amendment requires fees to be “reasonable and proportional to the cost incurred by the issuer with respect to the transaction” and directs the Fed to consider only incrementalauthorization, clearance, and settlement (ACS) costs. The district court found that Regulation II unlawfully included four additional categories:

As the ABA’s amicus brief argues, all four categories “arise directly from individual debit transactions” and must be included for the fee to be truly reasonable and proportional. Merchants counter — per NFIB’s brief — that “Congress did not hide an ‘easter egg’ of a third cost category,” pointing to the statute’s plain text prohibition on costs “not specific to a particular electronic debit transaction.”

The Post-Chevron Dimension

A critical wrinkle: the D.C. Circuit upheld Regulation II in 2014 using Chevron deference, finding the Fed’s cost interpretation was “permissible.” That precedent is now effectively dead after Loper Bright (2024), which requires courts to independently determine what the statute means — no longer deferring to the agency. Merchants argue this changes the outcome; the Fed must now defend its cost inclusions on the pure statutory text.

The Second Prong: Universal vs. Issuer-Specific Cap

The district court also struck down Regulation II’s universal 21¢ cap, holding the Durbin Amendment requires the fee to be assessed “with respect to the transaction” — meaning it must be issuer-specific and transaction-specific, not a blended average. The Cooley analysis notes this would create significant operational complexity if upheld.

Parallel Litigation: Sixth Circuit

The fight is now playing on two fronts. Linney’s Pizza, LLC v. Federal Reserve at the Sixth Circuit involves a merchant that lost at the district court level — the opposite result from Corner Post. The Retail Litigation Center’s May 2026 amicus brief estimates issuers have extracted “an estimated $100 billion or more in excess profits from merchants” since 2011, including over $16 billion in 2023 alone. A circuit split would likely push this to the Supreme Court.

What’s at Stake

• The current cap is 21¢ + 5 bps. The Merchants Payments Coalition notes banks’ average allowable processing cost has dropped from 7.7¢ (2009) to 3.9¢ (2021), making the cap over five times actual costs.

• The Fed’s pending 2023 proposal to lower the base rate to 14.4¢ remains on hold but would not be impacted by the stay.

• If the Eighth Circuit affirms, banks would likely be limited to recovering only incremental ACS costs — potentially driving fees well below even the proposed 14.4¢ level.

• The ABA warns that a dramatically lower cap would harm community banks and reduce debit card market investment, particularly as fraud rises.