Fed’s Debit Card Swipe Fee Rule Tossed In Win For Retailers

Retailers won a key legal battle over debit card swipe fees after a federal judge determined the Federal Reserve went beyond what Congress allowed in setting rules more than a decade ago.

Lawmakers only permitted banks to charge retailers interchange fees that would cover incremental costs of processing debit card transactions on card networks such as Visa Inc. and Mastercard Inc. under the 2010 Dodd-Frank provision known as the Durbin Amendment, Judge Daniel M. Traynor of the US District Court for the District of North Dakota said in a Wednesday order.

But the Fed exceeded its authority by allowing fraud-prevention and other costs to be included in the interchange fee calculation when it finalized rules in 2011, Traynor said. The payment card networks set the fees, with banks and card issuers retaining most of the money.

“Congress did not hide an ‘easter egg’ of a third cost category in the Durbin Amendment, particularly when those additional costs would benefit banks at the expense of merchants and consumers,” he wrote.

Traynor vacated the rule but stayed his decision overturning it pending a potential appeal from the Fed “to prevent interchange transaction fees from becoming a completely unregulated market.”

The central bank will be allowed to move forward with a 2023 proposal to reduce swipe fees.

Retailers got another chance to challenge the Fed’s debit card interchange fee rule after the US Supreme Court allowed the case to move forward in its July 2024 ruling in Corner Post v. Board of Governors of the Federal Reserve System. The high court determined that a six-year statute of limitations on challenging the Fed’s rule didn’t apply to Corner Post because the North Dakota convenience store only opened in 2018.

“If the Durbin Amendment is to mean anything, it’s that there are specific costs that banks can recover from merchants, and costs that they categorically cannot recover from merchants,” Stephanie Martz, the National Retail Federation’s general counsel, said in a statement.

Martz served as co-counsel for Corner Post along with attorneys from Consovoy McCarthy PLLC.

The Fed declined to comment.

Long-Running Fight

Traynor’s ruling is the latest development in the long-running fight between banks and retailers over debit card interchange fees.

Large banks collect around $13 billion from the fees each year, according to an analysis by Bloomberg Intelligence.

The Fed’s 2011 rule allowed banks to charge 21 cents per transaction plus 0.05% for processing debit card transactions.

Retailers have long contended that the fee is too high in part because the Fed allowed banks to include charges such as fraud prevention that the Durbin Amendment, named for Sen. Dick Durbin (D-Ill.), explicitly barred.

Traynor agreed.

The Fed is considering a proposal that would lower debit card swipe fees by nearly 30% after retailers filed a petition asking the central bank to take a second look at the existing rate allowances.

The Fed determined that what constitutes “reasonable and proportional” debit card interchange costs under the Durbin Amendment had changed significantly since the rule was finalized in 2011, according to a staff memo linked to its 2023 proposal.

Retailers say they paid a combined $187 billion in credit and debit card swipe fees in 2024. Credit card interchange fees aren’t subject to a regulatory cap.

The Clearing House Association, a bank-owned payment network operator, and the Bank Policy Institute, a trade association representing the country’s largest banks, asked to defend the Fed’s interchange fee rule, but a federal magistrate judge denied their request in February.

“The payment system is secure, convenient and reliable because of significant investment by banks, and today’s decision, if affirmed, would undermine that system,” the banking groups said in a joint statement. “It would disincentivize innovation and perpetuate a misguided notion that banks should be forced to offer products and services without being able to recover the costs necessary to sustain those investments.”

Wilmer Cutler Pickering Hale & Dorr LLP represents BPI and Clearing House.

The case is N.D. Retail Ass’n v. Bd. of Fed. Rsrv. Sys., D.N.D., No. 1:21-cv-00095, Order Granting Motion for Summary Judgment 8/6/25.

https://news.bloomberglaw.com/banking-law/feds-debit-card-swipe-fee-rule-tossed-in-win-for-retailers