WATFORD CITY, N.D.–A decade and a half after a convenience store/truck stop filed a lawsuit over the debit card interchange fees it was charged, a court has ruled in its favor. It will now be up to the Supreme Court to decide what the implications will be for credit unions and other financial institutions.
The case, Corner Post v. Board of Governors of the Federal Reserve System, challenged swipe fees and the ruling has been hailed by the nation’s retailers. It has been just as strongly condemned by credit unions and other financial institutions, with America’s Credit Unions calling it a “blow to consumer protection and fair-market competition.
As the CU Daily reported, in the 44-page ruling Judge Daniel M. Traynor of the U.S. District Court for the District of North Dakota ruled that the Federal Reserve exceeded its authority when it included fraud-loss adjustments and other essential costs in its 2011 debit interchange rule. Specifically, that rule limits debit interchange to 21 cents plus 0.05% per transaction.
Two Buckets Only
Traynor wrote that the statute “creates two—and only two—allowable cost buckets,” and that inserting a third unlawfully shifted billions from merchants to issuers.
“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,” the ruling states. “(T)he Board cannot legislate through regulation what Congress declined to enact.”
Traynor has stayed the action to give the Federal Reserve time to appeal.
The case has actually already been before the Supreme Court once, but this time over the statute of limitations. On July 1, 2024, the Supreme Court issued its decision in Corner Post, Inc. v. Board of Governors of the Federal Reserve System, addressing when a plaintiff may bring a facial challenge to a final agency action under the Administrative Procedure Act (APA), according to Congress.gov. Under 28 U.S.C. § 2401, claimants generally must file civil suits against the government “within six years after the right of action first accrues.”
The petitioners in Corner Post asked the Court to decide when a claim accrues under the APA for purposes of facial challenges to agency actions: Does the claim accrue at the time the agency action becomes final or when the plaintiff bringing the suit is injured by the action?
The Court, in a 6-3 decision, held that such claims accrue when an injury to the plaintiff occurs, rejecting the government’s argument to the contrary.
‘No Immediate Implications’
In response to questions from the CU Daily, Carrie Hunt, chief advocacy officer with America’s Credit Unions, said the ruling will have no immediate impact but could in the future.
“The Court made clear that covered debit issuers will still need to comply with Regulation II despite the rule being declared unlawful,” Hunt said. “Debit interchange remains capped under existing Reg II, pending resolution of the Fed’s appeal to the Eight Circuit Court of Appeals. Credit unions will need to be prepared though that a reduction in fees could come in the future.”
Hunt said that if the decision is upheld on appeal the Fed could again appeal to the Supreme Court.
“Until there is a final resolution of this lawsuit, we will not know the impact on interchange fees and Regulation II. Ultimately, should the Fed lose at the Supreme Court, it may be forced to rewrite its 2011 rule,” Hunt said. “With impending shifts to the makeup of the Fed — Chair (Jay) Powell’s term ends in May 2026 — and Gov. (Debora) Kugler vacating her seat… it remains to be seen how the makeup of the Fed Board impacts whether there is appetite to revise the rule sooner or proceed with its pending Reg II rulemaking to reduce the interchange fee cap.”
Could Some CUs Exit Debit?
Should future court rulings continue to go against financial institutions, is a scenario in which credit unions opt to move away from debit cards a possibility?
“Debit cards are an essential financial product that consumers demand and need. With no immediate impact from the court’s decision this week, it is difficult to speculate what may happen with debit cards in the future,” said Hunt. “We do know that for many issuers, the loss of interchange income would cause them to have to charge fees elsewhere to make up for the costs of the program- direct and indirect.”
Moving forward, Hunt said America’s Credit Unions will continue to oppose the “misguided and ineffective” Durbin Amendment and will advocate for reform.
“This issue is really ultimately about consumer harm,” Hunt said. “America’s Credit Unions will continue to fight for our member’s ability to have a safe and secure mechanism for electronic transactions for their members.”
DCUC Calls Decision Deeply Disappointing
Meanwhile, the Defense Credit Union Council (DCUC) has expressed its strong disagreement with the ruling.
“We are deeply disappointed in the court’s decision. It effectively resurrects a failed federal Durbin Amendment experiment – a policy that led to higher costs for consumers, the elimination of rewards programs, and reduced access to affordable credit,” said DCUC President/CEO Tony Hernandez in a statement.
His reference was to what DCUC called “the well-documented consequences observed after the original debit card price controls took effect.”
Hernandez emphasized DCUC’s belief the judge’s ruling undermines the safety and fairness of the payments system, stating that by barring interchange fees from covering fraud-prevention and security costs, the decision strips away critical funding for protecting consumers’ data and transactions.
The Role of Fees
“Interchange fees aren’t corporate profits – they fund secure, affordable financial services in communities that big banks often overlook,” added Jason Stverak, DCUC’s chief advocacy officer, in a statement. “Slashing this revenue puts military financial readiness at risk — and by extension, our national security”.
DCUC said it is concerned that the court has essentially given large retailers a “free ride,” saying the ruling allows merchants to benefit from America’s debit payment infrastructure without paying their fair share to maintain and protect it.
Key Issues & Risks
In its analysis, DCUC said the following are the key issues and risks as a result of the court ruling:
- Harm to Consumers: “The Durbin Amendment’s price controls have not delivered savings to everyday Americans. Studies found that 76% of merchants did not pass on any savings from the Fed’s earlier debit fee cap to customers. Instead, consumers saw higher costs, the loss of free checking accounts and rewards programs, and reduced access to credit following Durbin’s implementation. DCUC is concerned the court’s decision will compound these negative outcomes.”
- Weakened Payment Security: “Interchange fees currently fund essential fraud prevention and cybersecurity programs that keep transactions safe. Removing the allowance for security costs means fewer resources to fight fraud, just as cyber threats and data breaches are growing. The ruling effectively forces financial institutions to shoulder all fraud costs, letting giant retailers evade responsibility for safeguarding the payments system.”
- Threats to Military Communities: “Many defense credit unions rely on interchange revenue to provide low-cost financial services that directly support U.S. service members and veterans. These funds underwrite zero-interest emergency loans, early pay for deployed troops, free financial counseling, and other critical resources military families depend on. Reducing interchange fees could threaten defense credit unions’ ability to offer these resources, which are crucial for the financial readiness that directly affects our service members’ mission readiness. In short, DCUC believes this ruling endangers the financial well-being of military families who already face unique challenges.”
- Unfair Advantage to Big-Box Retailers: “DCUC asserts that the only winners from undoing the swipe fee cap are large multinational retailers – at the expense of consumers and smaller financial institutions. The ruling lets big retail chains pad their profit margins by shifting payment processing costs onto credit unions and their members. This outcome is fundamentally unfair and anti-consumer, especially when past evidence shows retailers kept the windfall from lower swipe fees instead of lowering prices for the public.”
‘Vigorous Appeal Urged’
DCUC is urging the Federal Reserve to “vigorously appeal this misguided decision and use the stay on the ruling to prevent chaos in the debit market.”
“Maintaining a regulated interchange framework is essential so that credit unions can continue offering the safe, secure, and convenient 24/7 payment services that Americans – especially military members – have come to expect,” said Stverak.
Added Hernandez, “We call on policymakers and regulators to remember the lessons of Durbin’s failures and to stand with credit unions in protecting consumers. Our nation’s heroes and hardworking families should not be collateral damage in retailers’ relentless campaign to pad their profits.”
Retailers Hail Decision
In a statement, the National Retail Federation said the court ruled correctly, “as merchants have argued for 14 years, the Fed’s broad attempt to allow big banks to essentially charge rent-seeking fees for debit card transactions is illegal.
“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. This court was correct in discerning this distinction,” the NRF continued. “And the court was correct in requiring the Fed to set rates based on individual transactions, not a blended average. We fully expect this decision to be sustained on appeal, and to save merchants hundreds of millions of dollars.”
