A North Dakota federal judge has upended the Federal Reserve’s rule that limits how much banks can charge retailers for processing debit card transactions — a decision that retailers have been chasing for years. But while the regulation has been struck down, the ruling won’t bite just yet, giving the Fed breathing room to fight back in higher courts.
The case stems from a long-running feud between merchants and banks over so-called “swipe fees.” Retailers argue the charges eat into their margins, while banks insist the cap ignores the real costs of running debit systems.
At the heart of the dispute is the Fed’s 2011 rule — Regulation II — that set a maximum fee of 21 cents per transaction, replacing a previously unregulated system. The regulation requires fees to be “reasonable and proportional,” but the plaintiff, a North Dakota convenience store named Corner Post, argued the Fed ignored Congress’s intent by imposing a blanket cap instead of tailoring fees to individual issuers and transactions.
Judge Daniel Traynor agreed, ruling that the central bank strayed beyond its authority by including certain cost categories in its calculation. It’s the second time Traynor has handled this case — he initially tossed it in 2022 for being filed too late, but the U.S. Supreme Court revived it last year, opening the door for a full hearing on the merits.
The ruling’s pause means an appeal to the 8th U.S. Circuit Court of Appeals could stretch for months, with a possible eventual stop at the Supreme Court. Banking groups have lined up behind the Fed, while retail associations are rallying behind Corner Post.
Meanwhile, the Fed is also weighing a separate 2023 proposal to cut the cap further to 14.4 cents per transaction — a move that could escalate the already fierce financial tug-of-war between Wall Street and Main Street.
