Eighth Circuit Strikes Down Debit Fee Cap, Pushing Fed to Rewrite Rule
Key Facts
The U.S. Court of Appeals for the Eighth Circuit struck down the interchange fee cap that sets how much large banks can collect on debit card transactions, according to a Law360 headline and indexed summary. The summary said the Federal Reserve must rewrite the rule, but details of the ruling and its scope were not clear from the available material. The case concerns fees paid by merchants to the bank that issues a debit card when a transaction is processed, which differ from fees charged by the payment network. The ruling puts the regulatory cap under judicial review, while the specific legal basis the court relied on could not be verified. The available material contained no details on when the rule must be rewritten or the ruling’s immediate effect on fees collected.
The rule falls under Regulation II, which governs interchange fees and debit card transaction routing standards. The Federal Reserve says the regulation sets standards for assessing whether fees received by a card issuer for an electronic transaction are “reasonable and proportional” to the costs it incurs. That makes how issuers’ costs are calculated a focus of the regulatory dispute, alongside the maximum allowed under the rule. The indexed summary of the ruling does not explain how the court addressed these standards or which parts of the rule were covered by the invalidation. It is therefore not possible to determine whether the decision changes the actual fees merchants pay before the regulation is rewritten.
The current cap is 21 cents per transaction, plus an amount equal to 5 basis points of the transaction’s value. The system also allows an additional adjustment of 1 cent per transaction for card issuers that meet fraud prevention standards. These components set the maximum fees covered by the rule, but they do not represent a uniform fee charged by the payment network. This financial detail highlights the scale of the issue now under review by the Fed and the court, without by itself revealing the outcome the revised rule will adopt. The available material did not establish that the ruling changed these components or immediately halted their application.
The Fed set the current cap in 2011 based on voluntary data submitted by large debit card issuers on transactions conducted in 2009. Since then, the Board has collected mandatory data every two years on large issuers’ costs and said some of those costs have fallen markedly. The Fed’s rule record said the underlying processing costs used for one component of the cap “nearly fell by half,” while issuers’ fraud losses also declined under the relevant measures. These data provide background to the Fed’s earlier review of fee levels, but do not by themselves establish the reason for the Eighth Circuit’s ruling. The available material also does not show how the required rewrite will address these cost changes.
In an earlier proposal, the Fed proposed lower preliminary components for the cap: 14.4 cents for the base component, 4 basis points of the transaction’s value, and a fraud adjustment of 1.3 cents. The proposal set these levels for the period from the effective date of the final rule through June 30, 2025, so the figures do not represent a currently effective cap under the material provided. The Board invited comments on the proposal and also proposed updating the maximum every two years based on cost data it collects from large card issuers. This periodic process puts data collection and cap updates at the center of the regulatory debate. The material does not say whether the rule the Fed will rewrite will adopt the earlier proposal or the same update schedule.
Banking associations had objected in a court filing to an interpretation they said could require card issuers to facilitate debit transactions “at a substantial loss.” The objection reflects the banks’ view of how fee limits affect transaction processing costs; it does not establish that the court adopted their position or that the ruling was based on it. In a separate dispute before the Sixth Circuit, the American Credit Union Association said the issue concerns whether the Durbin Amendment allows the Fed to count costs beyond incremental authorization, clearing and settlement costs. That dispute concerns the interpretation of which costs may be included when setting the Regulation II cap, and the available material does not show that it formed part of the Eighth Circuit ruling. The Federal Open Market Committee is scheduled to meet on October 27 and 28, 2026, a date the sources do not link to the fee dispute.