Banking and Finance Law Daily Wrap Up, CREDIT, DEBIT AND GIFT CARDS—8th Cir.: Fed erred in setting debit interchange-fee cap, (Oct 27, 2026)

By John M. Pachkowski, J.D.

When establishing interchange fees, the Fed “must 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 Eighth Circuit Court of Appeals affirmed a judgment vacating the Federal Reserve Board’s 21 cent debit card interchange fee cap and remanded the case for a new fee structure consistent with the Durbin Amendment. Applying Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024), the court independently interpreted “incremental cost” as the marginal cost of one additional transaction and held that Regulation II improperly included fixed, non-transaction-specific costs (Corner Post, Inc. v. Board of Governors of the Federal Reserve System, No. 25-3000 (Oct. 26, 2026)).

Procedural path. After a lengthy notice-and-comment process, the Federal Reserve adopted Regulation II with a base cap of 21 cents per debit transaction, plus 0.05 percent of the transaction value for fraud losses, and allowed cardholder banks meeting fraud-prevention standards to add one cent. Corner Post, a North Dakota truck stop and convenience store, challenged the rule under the Administrative Procedure Act (APA), alleging that it was “not in accordance with law” and exceeded the Federal Reserve’s statutory authority. A limitations dispute reached the U.S. Supreme Court which held, in 2024, that a plaintiff under the APA has no cause of action until suffering injury from final agency action and concluded that Corner Post’s challenge was timely. The case then returned to the district court for a decision on the merits (see Banking and Finance Law Daily, July 1, 2024).

On remand, the district court concluded that the Fed had considered costs the statute prohibited because they were not specific to a particular debit transaction. It identified fixed authorization, clearance, and settlement costs; network-processing fees; transaction-monitoring costs for fraud prevention; and fraud losses, and viewed the flat cap’s application regardless of a transaction’s cost as the clearest sign of the problem. The district court ordered vacatur but stayed its decision pending appeal (see Banking and Finance Law Daily, Aug.8, 2025).

Loper Bright’s effect. The Federal Reserve asked the Eighth Circuit to defer to its statutory interpretation, but the court said that form of deference ended with Loper Bright Enterprises which requires courts to exercise independent judgment when interpreting statutes administered by agencies. The Fed’s express authority to prescribe regulations and establish standards permitted it to operate within the statute’s boundaries but did not provide an independent basis for deference. As the court put it, “Zero deference from the Administrative Procedure Act, plus zero deference under the statute we are interpreting, still adds up to nothing.”

The court’s review centered on the Durbin Amendment’s instruction to distinguish between the incremental cost of authorizing, clearing, or settling a particular debit transaction and other issuer costs not specific to a transaction. The statute requires the Fed to consider the first category and not the second when establishing standards intended to keep interchange fees reasonable and proportional to issuer costs. The Eighth Circuit interpreted “incremental cost” as marginal cost—the amount added to an issuer’s total cost by one additional electronic debit transaction. That interpretation invalidated the current rule because the Fed acknowledged during rulemaking that fixed costs entered the interchange fee cap. The appellate court held that marginal costs must be considered, while fixed costs not specific to a particular transaction must not be considered. The court also recognized that an expense can be fixed for one issuer but incremental for another and read the statute’s reference to plural “standards” as inconsistent with the single uniform cap adopted in Regulation II.

The appeals court also noted that the Durbin Amendment does not require interchange fees to match marginal cost exactly; and that the Fed is free to use a proxy, potentially average variable cost, if it bears a reasonable relationship to issuers’ marginal transaction-processing costs. At minimum, however, the agency must separate transaction-specific costs from other costs.

Promptly replace. Following release of the court’s decision, Doug Kantor, an Executive Committee member of the Merchants Payments Coalition and National Association of Convenience Stores General Counsel said, “Today’s decision confirms what merchants have said for more than a decade: The Fed let the nation’s biggest banks charge far more than the law allows.” He added, “Two courts have now agreed that the current rate lets banks collect billions of dollars a year more from stores and their customers than the law ever meant for them to have—far more than it takes to cover their costs and earn a healthy profit. Rather than keep defending an illegal rule, the Fed should promptly replace it with one that complies with the law and takes some of the upward pressure off the prices shoppers pay every day.”

“Deeply disappointed.” On the other hand. coalition of bank trade organizations, composed of the Consumer Bankers Association, American Bankers Association, America’s Credit Unions, Electronic Payments Coalition, Independent Community Bankers of America, and the National Bankers Association, were “deeply disappointed” by the court decision. They noted, “Today’s decision threatens to compound that harm by preventing regulated interchange fees from reflecting the real costs banks incur to process transactions, prevent fraud and protect customer data.” They added, “It's important to remember that this decision is not the last word on these issues. Another federal appellate court is considering similar questions in the Linney’s Pizza case, where the district court upheld the Federal Reserve’s rule. We will continue advocating for an approach that protects consumers and preserves the safe and efficient debit card system they depend on.”

The case is No. 25-3000.

Judge: Stras, J

Attorneys: Frank H. Chang (Consovoy & McCarthy) for Corner Post, Inc. Joshua Paul Chadwick for Board of Governors, of the Federal Reserve System.

Companies: America’s Credit Unions; American Bankers Association; and the National Bankers Association; Consumer Bankers Association; Corner Post, Inc.; Electronic Payments Coalition; Independent Community Bankers of America; Merchants Payments Coalition; National Association of Convenience Stores

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