A U.S. District judge overturned the Federal Reserve’s 2011 regulated rate for debit card “swipe” fees on the grounds that it was set higher than intended by Congress.

U.S. District Judge Daniel Traynor ruled in favor of Corner Post, a Watford City, North Dakota-based truck stop and convenience store—and NACS member—that filed suit in 2021 saying the Federal Reserve set the regulated rate too high. The judge vacated the regulations setting the rate but placed the move on hold pending any appeal “to prevent interchange transactions from becoming a completely unregulated market.” The order does not prevent the Fed from implementing a still-pending 2023 proposal to lower the rate.

"We are glad to see this well-reasoned decision," said NACS General Counsel Doug Kantor. "This case shows that banks have swiped a windfall of billions of dollars per year in debit fees from Main Street that go far beyond normal, competitive profit margins. The Federal Reserve should quickly rewrite its rules to cure this problem and reduce the inflationary pressure these fees impose on the entire U.S. economy."

The ruling was largely focused on the Federal Reserve’s interpretation of the Durbin Amendment that directs that any interchange fee be “reasonable and proportional to the incremental cost” of authorization, clearance and settlement. The Federal Reserve, however, wrote a three‑part formula that also recouped certain fixed and fraud‑prevention expenses. Judge Traynor concluded that the statute “creates two—and only two—allowable cost buckets,” and that inserting a third category unlawfully shifted billions of dollars from retailers to issuers.

“Now that the United States Supreme Court has remanded this case after addressing a procedural question, this Court is tasked with deciding whether the Board’s regulation limiting debit card interchange transaction fees properly followed Congress’s directions. In short, it did not,” the judge wrote.

Under regulations established in 2011, banks that have at least $10 billion in assets and follow rates set centrally by Visa and Mastercard are allowed to charge up to 21 cents per debit card transaction plus 1 cent for fraud prevention and 0.05% of the transaction amount for fraud loss recovery.

Debit card swipe fees averaged about 45 cents per transaction before the regulated rate was set, and merchants have saved an estimated $9 billion a year. Even with the savings, debit card swipe fees cost merchants and their customers $38.7 billion in 2024, according to the Nilson Report.

The Federal Reserve is likely to appeal the ruling.