Federal Appeals Court Strikes Down 21-Cent Debit Card Swipe Fee Cap, Setting Up Fed Rewrite

A federal appeals court ruled October 26, 2026, that the Federal Reserve’s 21-cent debit card swipe fee cap violates federal law, forcing the agency to revisit how much large banks can collect when customers pay by debit card. The existing cap remains in place for now because the decision does not take effect until the Eighth Circuit issues its formal mandate.

The unanimous U.S. Court of Appeals for the Eighth Circuit affirmed a North Dakota ruling that invalidated Regulation II. The judges found that the Fed included banking expenses Congress excluded from the calculation used to determine permissible debit interchange fees.

The ruling reaches a payment system Americans use constantly. Payment networks processed 100.7 billion debit and general-use prepaid card transactions worth $4.7 trillion in 2023.

Under Regulation II, large card-issuing banks can receive up to 21 cents per debit transaction, plus 0.05% of the purchase amount. Another penny is available for issuers that meet qualifying fraud-prevention standards. Merchants bear those interchange charges as part of the cost of accepting debit cards.

Congress limited those fees through the Durbin Amendment to the 2010 Dodd-Frank financial reform law. The statute directs the Federal Reserve to consider the incremental cost of authorizing, clearing and settling individual debit transactions while excluding expenses that are not specific to a particular purchase.

Writing for the three-judge panel in Corner Post Inc. v. Board of Governors of the Federal Reserve System, Circuit Judge David Stras found that the Fed crossed that line by including fixed expenses such as software and equipment costs that remain largely unchanged as transaction volume rises or falls.

The court said the relevant measure focuses on the additional cost a bank incurs when it processes another debit purchase. The Fed can use a reasonable method for calculating those costs rather than price every transaction individually, but its formula must separate eligible transaction-specific expenses from broader fixed costs.

Corner Post, a North Dakota truck stop and convenience store, challenged the rule under the Administrative Procedure Act. The case first reached the Supreme Court in 2024, when the justices ruled that Corner Post’s six-year deadline to sue began when the business was injured by the regulation, rather than when the rule was issued in 2011. That decision revived the challenge and eventually led to Monday’s ruling.

For merchants, the stakes are direct. A lower replacement cap could reduce the fees attached to billions of debit-card purchases, although the amount of any savings remains unknown because the Fed has yet to produce a new rule and the appeals court set no replacement fee.

The effect on consumers is less certain. Retail groups argue that lower processing costs could ease pressure on prices, while banks and credit unions warn that reduced interchange revenue could shift costs toward account services, fraud prevention or other banking products. The ruling itself does not determine which of those effects will follow.

The Federal Reserve was already reconsidering the fee structure before the Eighth Circuit acted. A pending proposal would lower the 21-cent base component to 14.4 cents, reduce the percentage-based charge from 0.05% to 0.04% and raise the fraud-prevention adjustment from 1 cent to 1.3 cents.

Monday’s decision creates a more fundamental problem for the agency than simply choosing a lower number. The Fed must now address which categories of banking costs federal law allows it to count when setting the cap.

For the moment, merchants and banks continue operating under the existing 21-cent framework. Because the Federal Reserve is a federal agency, the parties generally have 45 days from entry of judgment to seek rehearing. Under federal appellate rules, the mandate ordinarily issues seven days after that deadline expires or seven days after a timely rehearing request is denied, unless the court changes the schedule.

Another major development could come from the Sixth Circuit, which heard arguments October 22 in Linney’s Pizza v. Federal Reserve after a Kentucky federal judge upheld Regulation II. That appeal presents a closely related fight over which costs the Fed can include when setting debit interchange fees.

If the Sixth Circuit ultimately reaches a different conclusion from the Eighth Circuit, the disagreement would create a split between federal appeals courts over the Federal Reserve’s authority and could put the debit-card fee dispute back before the Supreme Court.