Federal Appeals Court Overturns Federal Reserve Cap on Bank Debit Card Swipe Fees

A federal appeals court has invalidated the Federal Reserve Board’s long-standing 21-cent cap on debit card swipe fees, ruling that regulators exceeded their legal authority when setting the limit. The decision by the U.S. Court of Appeals for the Eighth Circuit requires the central bank to rewrite rules governing transaction fees charged by financial institutions.

The ruling affirms a 2025 decision from the U.S. District Court for the District of North Dakota in favor of Corner Post, a North Dakota convenience store that challenged the regulations in 2021. The outcome forces the Federal Reserve to recalculate interchange fee limits for banks holding over $10 billion in assets.

Court Rejects Fed Formula for Fixed Operational Costs

Enacted in 2010, the Durbin Amendment directed the Federal Reserve to ensure that debit card interchange fees were reasonable and proportional to the actual incremental cost of processing a transaction. However, when the Fed established the nationwide 21-cent cap, it factored in fixed operational overhead, including computer hardware, software, labor, and fraud prevention expenses.

U.S. Circuit Judge David Stras, writing for the Eighth Circuit, rejected that approach. The court held that the statute limits fee calculations to marginal costs—the specific expense added by processing one individual debit transaction. Judge Stras noted that future fee rules cannot be based on fixed hardware, software, or network connectivity costs.

While striking down the original formula, the court noted that the Federal Reserve does not have to calculate exact penny costs for every individual transaction across the nation. Instead, regulators may use economic shortcuts to establish an average variable cost for covered financial institutions.

Statute of Limitations Milestone Allowed Lawsuit to Proceed

Corner Post originally faced procedural hurdles when challenging the fee cap because the rule had been in effect for years before the store filed suit. However, a landmark 2024 U.S. Supreme Court ruling determined that the six-year statutory clock for challenging federal administrative rules begins only when a plaintiff suffers actual injury, rather than when the rule is issued.

Because Corner Post opened for business years after the 21-cent cap took effect, the Supreme Court’s decision cleared the way for its federal lawsuit to proceed on the merits in North Dakota.

What the Decision Means for Businesses and Consumers

The ruling directly impacts retail businesses, financial institutions with more than $10 billion in assets, and payment processing networks. Merchants who accept debit cards may see changes in their transaction expenses once the Federal Reserve issues a revised rule.

Here is how key groups are affected and what steps may follow:

• Retail Merchants: Business owners may experience changes in swipe fee structures once new Fed regulations are finalized. Retailers in suit proceedings previously argued for tiered fee caps based on bank size, transaction volume, and location.
• Covered Banks: Financial institutions with over $10 billion in assets must prepare for new fee limits that exclude fixed hardware and administrative expenses from the cap formula.
• Regulators: The Federal Reserve must publish a revised rule. In 2023, the board proposed lowering the cap from 21 cents to 14.4 cents, but that proposal stalled following resistance from banking groups.

Navigating Regulatory and Financial Industry Changes

As federal agencies revise complex financial regulations, businesses and institutions face shifting compliance obligations. Speaking with a qualified attorney can help business owners understand their rights regarding processing fees, statutory deadlines, and evolving federal rules.

This article is general information based on Courthouse News Service and court or agency records available at publication time. It is not legal advice; laws and deadlines differ by state and by case. Published October 26, 2026.