US Debit Card Interchange Fee Regulation - Federal Court Ruling and Fed's Proposed Revisions' Impact on Payment Networks - 美国借记卡交换费监管：联邦法院裁决与美联储拟议修订对支付网络的影响

Executive Summary

Reports from Bernstein, Goldman Sachs, and Bloomberg Law collectively indicate that despite a U.S. federal court ruling that the Federal Reserve overstepped its authority in setting debit card interchange fee caps—allowing for the inclusion of non-incremental transaction processing costs—and the Federal Reserve's potential move to cut interchange fees, the revenue impact of these regulatory changes on major payment networks like Visa and Mastercard is expected to be very limited. This is because they do not directly earn interchange fees, and the proportion of network revenue contributed by Covered Issuers (which are subject to the caps) is low. Instead, these changes will primarily benefit SMB acquirers using blended pricing models and certain unregulated debit card services. Historical experience also suggests that such cap adjustments have not negatively impacted overall payment network fee revenue; rather, they have shifted the fee structure towards acquirers.

Federal Court Ruling: Debit Card Interchange Fee Rules Challenged

In July 2024, U.S. District Judge Daniel M. Traynor for the District of North Dakota ruled that the Federal Reserve's debit card swipe fee rule, finalized in 2011, exceeded congressional authorization by allowing banks to include fraud prevention and other non-incremental costs in swipe fee calculations. This was deemed beyond the scope permitted by the Durbin Amendment within the 2010 Dodd-Frank Act.

• Core of the Ruling:
  • The judge stated that Congress's original intent was to permit banks to charge only for the incremental processing costs of debit card transactions.
  • Judge Daniel M. Traynor emphasized that Congress did not hide a "Easter egg" of a third category of costs in the Durbin Amendment, especially when these additional costs would benefit banks at the expense of merchants and consumers.
• Ruling Outcome and Subsequent Impact:
  • The judge vacated the rule but temporarily stayed its overturn to prevent the interchange transaction fees market from spiraling out of control, pending a potential appeal by the Federal Reserve.
  • This ruling could accelerate the Federal Reserve's previously stalled final rulemaking process.
  • The ruling does not affect the Federal Reserve's proposal, put forth in 2023, to reduce swipe fees by nearly 30%.
• Legal Basis and Retailers' Victory:
  • Retailers were able to challenge the Federal Reserve's debit card interchange fee rule again because the US Supreme Court's July 2024 ruling in Corner Post v. Board of Governors of the Federal Reserve System allowed the case to proceed. The Supreme Court found that the 6-year statute of limitations for challenging Federal Reserve rules did not apply to Corner Post, as the North Dakota convenience store opened only in 2018.
  • National Retail Federation General Counsel Stephanie Martz stated that if the Durbin Amendment meant anything, it was that the costs banks could recover from merchants were specific, and some costs were absolutely not recoverable.
• Banking Industry Concerns:
  • Banking groups, including The Clearing House Association and Bank Policy Institute, had requested to defend the Federal Reserve's interchange fee rule but were denied.
  • They issued a joint statement arguing that the payment system is secure and reliable because banks have made significant investments. They claimed that today's ruling, if upheld, would undermine this system, hinder innovation, and perpetuate the false notion that banks should be forced to provide products and services without being able to recover the costs necessary to sustain these investments.
• Case Information:
  • Case Name: North Dakota Retail Association et al v. Board of Governors of the Federal Reserve System
  • Court: US District Court for the District of North Dakota
  • Case Number: No. 1:21-cv-00095
  • Ruling Type: Order Granting Motion for Summary [...] Judgment
  • Ruling Date: August 6, 2025

Federal Reserve's Proposed Revisions to Debit Card Interchange Fees

Prior to the judge's ruling, the Federal Reserve had proposed revisions to the current debit card interchange fee caps in late 2023 and may accelerate its final rulemaking process due to this ruling.

• Proposal Content:
  • Reduce regulated interchange fees from $0.21 + 5bps per transaction to $0.144 + 4bps.
  • This adjustment represents a nearly 30% fee reduction for Covered Issuers.
  • Slightly increase the fraud adjustment (from $0.01 to $0.013).
• Scope of Application:
  • Any revised interchange fee cap would apply only to Covered Issuers with assets exceeding $10 billion.
  • These Covered Issuers are estimated to account for approximately 60% of U.S. debit card transaction volume.
  • The Federal Reserve's 2023 proposal (prior to the judge's ruling) would lower the debit card interchange fee cap for Covered Issuers from the current $0.245 to an average of $0.177 per $50 transaction, a slightly lower actual reduction as current interchange rates are already slightly below the cap.
• Effective Date and Future Adjustments:
  • Any new rule would take effect at least 60 days after its final publication.
  • The Federal Reserve's 2023 proposal also suggested continuous adjustment of interchange fees every 2 years using a formulaic method based on issuer-reported data.