Court rejects the Fed's cost formula
A federal appeals court decided on Monday that the Federal Reserve has to replace the regulation that sets the maximum fee banks may collect for handling debit card payments. The outcome favors retailers, who have long contended that the rate the central bank adopted was well above the ceiling federal law permits. The U.S. Court of Appeals for the Eighth Circuit concluded that the rule departed from what Congress intended, pointing to the way it accounted for fraud protection and other bank expenses inside the swipe fee.[S1][S2][S3][S5][S8]
The contested rule dates to 2011, when the Fed implemented it after Congress passed the Dodd-Frank Act a year earlier. Under that framework, institutions holding at least $10 billion in assets could charge as much as 21 cents for each debit transaction, plus a penny for fraud prevention and an additional 0.05% of the purchase amount to cover fraud and loss protection. Lawmakers had specified that any regulated rate be both reasonable and proportional to the costs banks actually bear.[S1][S5]
Retailers press for a lower rate
The legal challenge began in 2021, when Corner Post Inc., a convenience store and truck stop operator based in North Dakota, joined retail trade associations in a suit seeking to block the Fed's rule. Merchant groups including the Merchants Payments Coalition and FMI have publicly backed the outcome, framing it as a win for stores and the shoppers they serve.[S1][S4][S6][S7]
Doug Kantor, senior vice president of government relations and general counsel at NACS, described the decision as validation of a case merchants have made for over ten years. He argued that two courts have now found the current rate lets banks take billions of dollars annually from stores and their customers beyond what lawmakers intended, and more than is needed to cover costs while earning a healthy profit. He urged the Fed to stop defending a rule he called illegal and to adopt a compliant replacement quickly, easing pressure on the prices consumers face daily.[S1]
Kantor also characterized the ruling as progress toward substantially lower debit swipe fee rates, which he said would benefit retailers and their customers alike. The Fed has not announced a timetable for drafting a new rule, and the appeals decision leaves the current rate in place until a replacement takes effect.[S1]
