Judge Daniel Traynor of the U.S. District Court in North Dakota ruled against the Federal Reserve in Corner Post v. Board of Governors, finding that the Fed's 2011 Regulation II debit interchange fee cap was set too high - the opposite of what banks had argued in prior challenges.
The Ruling
The court found that the Fed failed to account for advances in payment processing technology and economies of scale when setting the original 21-cent-plus cap. Rather than the cap being too low (the banking industry's longstanding position), the court determined it was too generous to issuers. The existing rule was vacated.
Regulatory Limbo
The October 2023 proposed revision - which would have lowered the cap from 24.5 cents to 17.7 cents on a $50 transaction - remains in limbo. The Fed must now decide whether to appeal, propose a new rule consistent with the court's reasoning, or negotiate a settlement.
Market Impact
If upheld on appeal, the ruling could force a substantially lower interchange cap, squeezing revenue for large card issuers (the rule applies to banks with over $10 billion in assets). Visa and Mastercard's debit network economics are directly affected, as are payment processors whose pricing models depend on predictable interchange rates.
What to Watch
Payment processors and merchants should monitor the appeals process. The combination of this ruling and the Illinois state-level interchange legislation signals a broader shift toward lower interchange economics in the U.S.
Source: American Banker