ST. LOUIS — In a case in which America’s Credit Unions filed an amicus brief, a federal appeals court Monday struck down the Federal Reserve’s 15-year-old regulation limiting debit-card interchange fees, handing merchants a major legal victory and raising the prospect of significant changes to the fees financial institutions receive when consumers use debit cards.
The 8th U.S. Circuit Court of Appeals ruled that the central bank exceeded its statutory authority in deciding which costs card issuers could recover through the fees, according to reports Monday by Bloomberg Law and Law360. The decision requires the Fed to revisit Regulation II, adopted in 2011 under the Durbin Amendment to the Dodd-Frank Act.
The appeals court found the Fed had permitted certain costs, including fraud-related expenses, in its calculations contrary to Congress’ instructions, according to Bloomberg Law, which said the court also faulted the agency for failing to define the incremental costs of authorizing, clearing and settling transactions when it adopted the rule.
About Regulation II
Under Regulation II, interchange fees on covered debit transactions generally are capped at 21 cents plus 0.05% of the transaction amount, with an additional 1 cent available to issuers meeting fraud-prevention standards, according to the Federal Reserve’s published rulemaking materials. The limits generally apply to issuers with at least $10 billion in assets; smaller issuers are exempt from the statutory cap.
Debit interchange fees are paid by merchants as part of the cost of accepting cards and flow to the financial institutions issuing those cards. Merchants have argued that the Fed’s formula allows fees higher than Congress intended, while banking groups contend that a tighter cap would fail to reflect the costs of processing transactions and fighting fraud.
A Long-Running Court Fight
As the CU Daily had previously reported, the case was brought by Corner Post, a North Dakota convenience store that challenged the regulation. In August 2025, U.S. District Judge Daniel Traynor vacated the rule but stayed his order while the Federal Reserve pursued an appeal, Reuters reported at the time.
The litigation had already reached the U.S. Supreme Court. In 2024, the justices ruled 6-3 that the six-year deadline for challenging a federal regulation under the Administrative Procedure Act begins when a plaintiff is injured by the rule, rather than automatically when the regulation is issued. That decision allowed Corner Post’s challenge to proceed but did not decide whether the interchange regulation itself was lawful.
The Federal Reserve defended its authority to adopt a uniform fee standard and include certain processing, monitoring and fraud-related costs. In a summary of the appellate briefing, the ABA Banking Journal reported that the Fed argued Congress had given it discretion to determine which transaction-related expenses could be included.
Implications for Credit Unions and Banks
The ruling could have substantial consequences for covered debit-card issuers, including large credit unions and banks, if a rewritten rule lowers permissible interchange revenue. The ultimate financial effect will depend on the Fed’s response, any further court proceedings and the terms and timing of a replacement regulation.
The Federal Reserve had separately proposed reducing the base cap to 14.4 cents and changing the percentage and fraud-prevention components, according to federal rulemaking records. Monday’s ruling adds a judicial mandate to the longstanding policy dispute over how the fee ceiling should be calculated.
According to the Federal Reserve Bank of St. Louis, U.S. banks collected nearly $66 billion in combined credit- and debit-card interchange fees in 2025. That figure includes credit-card fees, which are not subject to the debit-card cap at issue in the case.
