Eighth Circuit Affirms Vacatur of Federal Reserve Debit Interchange Fee Cap

The decision requires a different cost methodology for regulated debit interchange fees but preserves the FRB’s discretion to develop workable replacement standards within the boundaries of the authorizing statute.

Key Points:

• The Federal Reserve must distinguish marginal authorization, clearance, and settlement costs from fixed expenses when setting debit interchange fee standards.
• The court rejected the existing uniform cap but permitted reasonable marginal-cost proxies, leaving the FRB flexibility within the boundaries of the statute to develop replacement standards.
• The existing cap remains in effect at least until the Eighth Circuit issues its mandate, after which the FRB must replace it with a fee standard that reflects the court’s reading of the statute.

On October 26, 2026, the US Court of Appeals for the Eighth Circuit affirmed vacatur of the Federal Reserve Board’s (FRB’s or Board’s) debit interchange fee cap.¹ The unanimous panel held that the Board’s methodology exceeded the limits Congress imposed through the Durbin Amendment of the Dodd-Frank Wall Street Reform and Consumer Protection Act.² On remand, the FRB must revisit how it measures allowable costs before it can set a new cap.

Statutory Framework and Procedural History

Payment networks generally set debit interchange fees. The merchant’s bank pays the fee to the card issuer and typically passes it on to the merchant, who may in turn pass some of that cost on to consumers. The Durbin Amendment requires that covered fees be “reasonable and proportional to the cost incurred by the issuer with respect to the transaction.” Congress directed the FRB to consider “the incremental cost incurred by an issuer for the role of the issuer in the authorization, clearance, or settlement of a particular electronic debit transaction” and exclude “other costs incurred by an issuer which are not specific to a particular electronic debit transaction.”

Regulation II was issued by the FRB in 2011 to implement the Durbin Amendment.³ Regulation II caps fees for covered transactions at 21 cents plus 5 basis points (0.05%) of the transaction value, with the percentage component intended to cover fraud losses. Eligible card issuers may receive a separate fraud prevention adjustment of up to 1 cent per transaction.

Under the small issuer exemption, debit card interchange fee caps generally do not apply when the issuer holds the debited account and, together with its affiliates, has less than $10 billion in assets at the end of the preceding calendar year. The exemption was explicitly carved out to ensure that community banks and credit unions could continue to earn higher interchange revenue to support their operations and compete with larger institutions. Certain government-administered payment programs (e.g., EBT, unemployment cards) and reloadable prepaid card transactions also qualify for exemptions, subject to specific conditions regarding how the cards are structured and how fees are charged to the cardholders.

The Corner Post Challenge

Corner Post, a North Dakota truck stop and convenience store, challenged Regulation II under the Administrative Procedure Act (APA), arguing that the FRB exceeded its statutory authority under the Durbin Amendment by factoring prohibited costs into the 21-cent interchange fee cap.

The US Supreme Court first addressed the suit’s timeliness in July 2024, holding that an APA claim accrues for purposes of the six-year statute of limitations under 28 U.S.C. § 2401(a) when the relevant plaintiff is injured by final agency action and has the right to assert a claim in court, and not upon publication of the relevant rulemaking.⁴ That procedural ruling allowed Corner Post’s challenge to proceed to the merits.

On August 6, 2025, the US District Court for the District of North Dakota granted summary judgment to Corner Post, holding that the FRB exceeded its statutory authority under the Durbin Amendment in setting Regulation II’s interchange fee standard.⁵ It held that the FRB could not recognize a discretionary “third category” of allowable costs specific to a particular transaction beyond incremental authorization, clearance, and settlement expenses. On that basis and additional grounds, it rejected fixed processing costs, transaction monitoring costs, fraud losses, and network processing fees. It also rejected the uniform fee standard but stayed vacatur pending the FRB’s appeal.

A three-judge panel of the Eighth Circuit reviewed the district court’s decision de novo. On October 26, 2026, the panel unanimously affirmed the district court’s judgment.

The Eighth Circuit’s Analysis

The Eighth Circuit panel, employing a strict textual reading of the Durbin Amendment, read “incremental cost” to mean marginal cost — the added expense of processing one more debit transaction — relying in part on the statute’s reference to “a particular” transaction.

Fixed costs, such as overhead, equipment, software, labor, network connectivity, and broad fraud-prevention expenses that do not change with transaction volume, are not included in this category of costs specific to a particular electronic debit transaction.⁶ The panel concluded that in “ignoring what it was supposed to consider and considering what it was supposed to ignore,” the FRB exceeded its statutory authority.

Like the district court, the Eighth Circuit also rejected the uniform cap. It read the statute to call on the FRB “to set ‘standards,’ plural, not a single uniform cap” and observed that accounting for differences among particular transactions “appears to be the point.”

The court did not require absolute precision from the FRB. Interchange fees “do not have to exactly match marginal cost,” and the FRB “is free to use a proxy, perhaps even average variable cost,” if the proxy bears “a ‘reasonable’ relationship” to marginal processing costs. As the court concluded, the FRB must “at a minimum … 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.”

The court approved no specific replacement model or rate but remanded the debit card interchange fee cap provision back to the FRB to develop “a fee structure that reflects the statute Congress wrote.” The FRB still has discretion to choose a methodology within the limits of the Durbin Amendment, or, as the court described it, “to color within the lines of the statute.”⁷

Judicial Review After Loper Bright

The FRB argued that courts should defer to its expert economic interpretation of the authorizing statute. However, applying the seminal 2024 Supreme Court decision in Loper Bright Enterprises v. Raimondo,⁸ which ended the era of Chevron deference,⁹ the panel decided for itself the limits of the FRB’s authority. As the court pointedly noted, “Deferring to an agency’s interpretation, like the Federal Reserve wants us to do here, ended with Loper Bright.”

The panel proceeded to reject the FRB’s argument that the deference-preservation provision in the Electronic Fund Transfer Act (EFTA) required deference to the Board’s reading of the statute. The EFTA merely preserved whatever default baseline of deference a court would normally give an agency under the APA, and after Loper Bright, the default baseline is now zero. As the panel concluded, “Zero deference from the Administrative Procedure Act, plus zero deference under the statute we are interpreting, still adds up to nothing.”

Independent judicial review under Loper Bright, however, does not guarantee a particular or uniform result. In the September 2025 decision in the case of Linney’s Pizza, LLC v. Board of Governors of the FRS,¹⁰ the US District Court for the Eastern District of Kentucky applied Loper Bright in a case challenging the FRB’s debit card interchange fee cap, and still upheld Regulation II. The Sixth Circuit Court of Appeals heard oral arguments on October 22, 2026, to review the district court’s ruling.¹¹ If the Sixth Circuit upholds the decision, it will create a circuit court split against the Eighth Circuit’s Corner Post ruling, setting the stage for a Supreme Court review of the issue on the merits.

Market Participants Respond

The Consumer Bankers Association (CBA) and five other banking, credit union, and payments trade groups opposed the ruling in a joint statement.¹² They argued that the decision “threatens to compound … harm” from Durbin Amendment price controls by preventing regulated fees from reflecting the costs banks incur to process transactions, prevent fraud, and protect customer data. They also noted that the district court in Linney’s Pizza upheld the Federal Reserve’s fee cap, adding that “this decision is not the last word on these issues.”

The Merchants Payments Coalition (MPC), which advocates for retailers, convenience stores, and supermarkets, welcomed the decision.¹³ It argued that the ruling enforces the strict statutory limits of the Durbin Amendment, paving the way to dismantle what it sees as excessively high debit card swipe fees and to significantly reduce operational costs for retailers. It further stated that “[t]he Fed let the nation’s biggest banks charge far more than the law allows” and urged it to “promptly replace [the interchange fee rate] with one that complies with the law.”

Conclusion

The existing cap under Regulation II remains in effect for the time being. The district court stayed its vacatur pending appeal, and the Eighth Circuit’s decision takes effect only when it issues its mandate.¹⁴ Once that happens, the cap will be set aside unless the Eighth Circuit or the US Supreme Court orders a further stay. In the meantime, the court has set no new rate, and the FRB must develop a replacement. Developments to monitor include a petition for rehearing, the timing of the Eighth Circuit’s mandate, the FRB’s next steps on a replacement rule, the Sixth Circuit’s decision in Linney’s Pizza, and a potential circuit split setting

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