On August 6, 2025, in Corner Post, Inc. v Board of Governors of the Federal Reserve System, the U.S. District Court for the District of North Dakota (the “Court”) granted Corner Post’s motion for summary judgment, finding that the Federal Reserve Board (the “Board”) exceeded its authority in adopting Regulation II, which in part caps debit card interchange fees. The Court held that the Board exceeded its authority by including the “third category” of costs that were specific to a particular transaction but were not incremental costs incurred by an issuer for the role of the issuer in the authorization, clearance, or settlement of a particular electronic debit transaction. The Court vacated Regulation II and stayed the vacatur pending the resolution of any appeal to Eighth Circuit “in order to prevent interchange transaction fees from becoming a completely unregulated market.” For more information about Corner Post and the history of the case, see our prior blog posts here, here, and here.
Durbin Amendment
Regulation II was promulgated in 2011 in response to the Durbin Amendment to the Dodd-Frank Act. The Durbin Amendment mandated that debit card interchange fees “be reasonable and proportional to the cost incurred by the issuer with respect to the transaction.” 15 U.S.C. § 1693o-2(a)(2). The Durbin Amendment set forth the framework for the Board to use to set debit card interchange fees in Sections 1693o-2(a)(4)(A)–(B) and 1693o-2(a)(5)(A):
(4) Considerations; consultation
In prescribing regulations under paragraph (3)(A), the Board shall—
(A) consider the functional similarity between—
(i) electronic debit transactions; and
(ii) checking transactions that are required within the Federal Reserve bank system to clear at par;
(B) distinguish between—
(i) the incremental cost incurred by an issuer for the role of the issuer in the authorization, clearance, or settlement of a particular electronic debit transaction, which cost shall be considered under [§ 1693o-2(a)(2)]; and
(ii) other costs incurred by an issuer which are not specific to a particular electronic debit transaction, which costs shall not be considered under [§ 1693o-2(a)(2)].
(5) Adjustment to interchange transaction fees for fraud prevention costs (A) Adjustments. The Board may allow for an adjustment to the fee amount received or charged by an issuer under [§ 1693o-2(a)(2)], if—
(i) such adjustment is reasonably necessary to make allowance for costs incurred by the issuer in preventing fraud in relation to electronic debit transactions involving that issuer; and
(ii) the issuer complies with the fraud-related standards established by the Board under [§ 1693o-2(a)(5)(B)], which standards shall—
(I) be designed to ensure that any fraud-related adjustment of the issuer is limited to the amount described in clause (i) and takes into account any fraud-related reimbursements (including amounts from charge-backs) received from consumers, merchants, or payment card networks in relation to electronic debit transactions involving the issuer; and
(II) require issuers to take effective steps to reduce the occurrence of, and costs from, fraud in relation to electronic debit transactions, including through the development and implementation of cost-effective fraud prevention technology.
Based on this authority the Board began the rulemaking process in 2010.
Regulation II Rulemaking
As noted above, the Durbin Amendment identified two specific categories of costs and directed the Board to distinguish between them in its rulemaking. The first category (“incremental cost incurred by an issuer for the role of the issuer in the authorization, clearance, or settlement of a particular electronic debit transaction”) was to be considered in setting debit card interchange fees, while the second category (“other costs incurred by an issuer which are not specific to a particular electronic debit transaction”) was not to be considered. In the proposed rulemaking, the Board sought comments on whether it should allow the interchange fee to cover a “third category” of costs—those costs specific to a particular transaction but not incremental authorization, clearance, or settlement costs. That third category of costs included the following costs incurred by issuers: (a) transactions processing costs, whether fixed or variable, such as “equipment, hardware, software and associated labor” that enable the issuer to “maintain and use network connectivity to effect each transaction;” (b) network processing fees; (c) transaction-monitoring costs that seek to prevent fraud during the authorization process; and (d) fraud losses incurred by the issuer. The capped interchange fees in the final rule took into consideration this “third category” of costs in addition to the first category of costs. On July 20, 2011, when the Board issued its final rule (Regulation II), it capped interchange fees at 21 cents per transaction plus an 0.05% ad valorem adjustment and a fraud-prevention adjustment of 1 cent.
In October 2023, the Federal Reserve Board issued a proposal to lower the maximum interchange fee that a large debit card issuer can receive for a debit card transaction. The proposed revisions would update all three components of the interchange fee cap based on the latest data reported to the Board by covered issuers regarding debit card transactions performed in 2021. Under the proposal, the base component would decrease from 21 cents to 14.4 cents, the ad valorem component would decrease from 5.0 basis points (multiplied by the value of the transaction) to 4.0 basis points (multiplied by the value of the transaction), and the fraud-prevention adjustment would increase from 1.0 cents to 1.3 cents for debit card transactions subject to the interchange fee cap. The proposed revisions would codify in Regulation II an approach for updating the three components of the interchange fee cap every two years based on the latest data covered issuers reported to the Board. The due date for comments was May 12, 2024. This proposal was never finalized by the Board.
Order Granting Summary Judgment
The Court granted summary judgment for Corner Post and denied the Board’s cross-motion for summary judgment. According to the Court, the Board expanded the allowable costs (“the incremental cost incurred by an issuer for the role of the issuer in the authorization, clearance, or settlement of a particular electronic debit transaction”) to include any cost that is not prohibited. Corner Post alleged that Regulation II violated the Administrative Procedure Act (APA) because the Board exceeded its statutory authority by including costs other than the incremental cost incurred by an issuer for the role of the issuer in the authorization, clearance, or settlement of a particular electronic debit transaction; including four prohibited costs; and issuing a universal fee cap for all covered issuers. Corner Post further alleged that the rulemaking was arbitrary and capricious by including four prohibited costs in the fee; refusing to determine whether costs were incremental, fixed or variable; and failing to establish the fee based on actual costs incurred by each issuer in each transaction. Corner Post asked the Court to vacate the debit interchange fee standard but stay the vacatur for six months to allow the Board to reissue a revised rule that complies with Congress’s mandate.
The Court relied on Loper Bright to determine that the Board’s interpretation of the Durbin Amendment was not subject to deference. In Loper Bright v. Raimondo, et al., the Supreme Court overturned the Chevron deference doctrine, a long-standing tenet of administrative law established in 1984 in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. This doctrine directed courts to defer to a government agency’s interpretation of a statute if the statute was ambiguous regarding, or simply did not address, the issue before the court, as long as the interpretation was reasonable. In Loper, the Supreme Court held that the APA gives judges, not agencies, the power to interpret statutes and “exercise their independent judgment in deciding whether an agency has acted within its statutory authority, as the APA requires.” The Court then determined the “best” interpretation of the Durbin Amendment.
The Court found that the Durbin Amendment detailed how the Board must assess whether an interchange fee is “reasonable and proportional” by dictating what the Board shall and shall not consider and what the Board shall distinguish between. The Court found that the Board’s inclusion of the “third category” of costs contradicted the statutory authority, concluding that “the Durbin Amendment prohibits the inclusion of any cost in the interchange fee standard other than the incremental [authorization, clearance and settlement] cost of a transaction.” The Court at length noted Congress’s grammar blunders in drafting the Durbin Amendment in examining the considerations to distinguish between the incremental costs and “other costs incurred by an issuer which are not specific to a particular electronic debit transaction, which costs shall not be considered under paragraph (2).” Ultimately, the Court found “the best interpretation is Congress established a bifurcated system only permitting the Board to include incremental authorization, clearance, and settlement costs in the interchange fee standard.” The Court further indicated that this interpretation is supported by the Board’s information collection provision and required reporting on the “costs incurred” in relation to the authorization, clearance, and settlement process. The Court noted that the legislative history and plain language of the Durbin Amendment foreclosed the Board’s interpretation to include the “third category” of other costs specific to the particular electronic debit transaction.
The Court held that the following four additional cost considerations in the debit card interchange fee are prohibited:
- Fixed authorization, clearance, and settlement costs
- Transaction-monitoring costs
- Fraud losses
- Network processing fees.
- The Court rejected Regulation II’s one-size-fits-all standard, in holding that:
- A single fee standard for all—even with an adjustable ad valorem component—cannot be squared with the Durbin Amendment’s text. Congress commanded the Board to “establish standards for assessing whether the amount of any interchange transaction fee . . . is reasonable and proportional to the cost incurred by the issuer with respect to the transaction.” 5 U.S.C. § 1693o-2(a)(3)(A) (emphases added).
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- Congress directed the Board to issue “standards”—not just one. 15 U.S.C. § 1693o-2(a)(3)(A). It also instructed the Board to include an issuer’s “incremental [authorization, clearance and settlement] cost” for “a particular” transaction in its standards’ cost considerations. Id. § 1693o-2(a)(4)(B)(i) (emphasis added). Not just any transaction or a conglomerate of transactions, but a “particular” transaction. Id.
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- A single standard cannot be reasonable and proportional to issuers with extremely high per-transaction costs and those with substantially lower costs. Accordingly, the Durbin Amendment necessitates tailored “standards” because not all issuers’ costs will be reasonable and proportional in relation to one fee standard. See 15 U.S.C. § 1693o-2(a)(3)(A).
- Having found that the Board exceeded its statutory authority, the Court did not rule on whether Regulation II is arbitrary and capricious or whether the major questions doctrine is an additional basis for finding Regulation II is contrary to law. The Court also disregarded the amici’s concerns that the debit card interchange fees permitted by the Board do not provide for a reasonable rate of return, making electronic debit transactions unprofitable for issuers, and that any further reduction in those fees could result in unconstitutional confiscatory action.
- The Court vacated Regulation II and stayed the vacatur pending appeal. The Court also indicated that its order does not prevent the Board from finalizing the 2023 proposal to lower the debit card interchange rule. We reasonably expect that the Board will appeal this order to the Eighth Circuit.
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