Court tossed the Fed's debit fee cap, and your card revenue runs through the same rules

The rule that has set debit card swipe fees since 2011 is going to be rewritten. A federal appeals court struck down the Federal Reserve's 15-year-old Regulation II, ABA Banking Journal reported on October 27, 2026. The Eighth U.S. Circuit Court of Appeals ruled that the Fed exceeded its authority in determining the costs banks could include when calculating the fees. (ABA Banking Journal, October 27, 2026)

Payments Dive reported on October 26, 2026 that a three-judge panel of the Eighth Circuit vacated the central bank's current 21-cent fee limit. The ruling upholds a lower court's August 2025 decision that eliminated the Fed's debit card interchange fee structure. The decision stems from a lawsuit brought by a group of retailers and Corner Post, a North Dakota convenience store and truck stop. (Payments Dive, October 26, 2026)

The court said the Fed counted costs the law does not allow

In last year's decision, U.S. District Court Judge Daniel Traynor found that the Durbin Amendment “clearly prohibits” the consideration of any costs except for incremental authorization, clearance or settlement costs in setting fees. The appeals court said the Fed's rule violated Congress' intent by allowing banks to include certain charges, such as expenses for fraud prevention, in debit card swipe fee calculations, ABA Banking Journal reported. Payments Dive reported that the Fed's rate cap included banks' “fixed costs related to authorization, clearance, and settlement,” along with network processing fees, costs for fraud prevention and for losses due to fraud. (ABA Banking Journal, October 27, 2026; Payments Dive, October 26, 2026)

The judges wrote that the Federal Reserve “shall . . . consider” marginal costs in setting debit-card interchange fees, but not fixed costs. The panel added that “debit-card interchange fees do not have to exactly match marginal cost,” and that the Fed is free to use a proxy if it bears a reasonable relationship to the marginal costs. According to the ruling, the Fed must rewrite the rule, capping how much banks can charge for processing debit card transactions.

Most community banks are exempt, but the pricing split runs through the same rule

The Reg II interchange standard applies only to banks and financial institutions that have $10 billion or more in deposits, Payments Dive reported. The Fed's own Regulation II document says a covered issuer may not receive an interchange fee that exceeds $0.21 plus 0.05 percent multiplied by the value of the transaction, plus a $0.01 fraud-prevention adjustment, if eligible. The same document defines exempt issuers as those with total worldwide banking and nonbanking assets of less than $10 billion as of December 31 of the previous year. (Payments Dive, October 26, 2026; Regulation II - Average Debit Card Interchange Fee by Payment Card Net, Federal Reserve)

The ruling does not change the $10 billion threshold, but it does order the Fed to redraw the cap that sets what covered issuers charge. What that rewrite does to the pricing gap exempt banks have relied on is not settled, because the Fed has not yet written the new rule. (ABA Banking Journal, October 27, 2026)

The Fed proposed in October 2023 to lower the base debit fee rate by about 30% to 14.4 cents, but has not moved forward since then, Payments Dive reported. A Fed spokesperson said the agency had no comment on the ruling or the status of its 2023 fee proposal. This is also not the last word, because a second case, Linney's Pizza vs. Federal Reserve, is pending in the Sixth Circuit, where a lower court last year found in favor of the Fed's rule.

Who pays, and what the networks do next

The Merchants Payments Coalition said two courts have now agreed that the current rate lets banks collect billions of dollars a year more from stores and their customers than the law ever meant for them to have. The American Bankers Association and five other trade groups said the ruling was disappointing, and that the Durbin Amendment's “government price controls have harmed consumers from the start.” They said the decision leaves large retailers paying less for the payment system they rely on, while “leaving banks, credit unions and consumers to shoulder the costs.” (Payments Dive, October 26, 2026; ABA Banking Journal, October 27, 2026)

The Fed's Regulation II table notes that networks may offer multiple pricing programs to issuers, and that its figures do not reflect what a particular issuer will earn on a particular network. That matters to you because your card income is set in your network and processor agreements, not in the court file. A rewrite of the covered cap can move the rates networks publish, and those schedules feed the economics your vendor deals assume. (Regulation II - Average Debit Card Interchange Fee by Payment Card Net, Federal Reserve)

What to do this month

1. Confirm your exempt status in writing. Check your total assets against the less-than-$10-billion test the Fed's Reg II document uses, and keep the figure on file for your examiner.
2. Pull your debit network and processor agreements and find the clause that ties your interchange to the Reg II cap or to published network schedules. Ask your network and processor in writing how a Fed rewrite of the covered cap would change the rates posted for exempt issuers like you.
3. Model your debit income against the Fed's own October 2023 proposal to cut the base rate to 14.4 cents, so you know the range before any new rule lands. Note that the Linney's Pizza case is still open in the Sixth Circuit, so set a reminder to watch it rather than repricing anything today.

Methodology

This article is built from published reporting and a primary Federal Reserve document, not from Ledger data. The reporting is from ABA Banking Journal, published October 27, 2026, and Payments Dive, published October 26, 2026, plus the Fed's Regulation II interchange fee page. The sources describe the ruling, the $10 billion threshold and the current cap, but they do not publish bank-level interchange revenue figures, so the dollar effect on any single community bank is not shown.