In another update on the interchange war, the Eighth Circuit Court of Appeals, just this week, has struck down the decade-and-a-half-long standard interchange fee limit. The nationwide, one-size-fits-all cap of 21 cents was established in 2010 under the Durbin Amendment, which required the Federal Reserve to ensure that interchange fees are reasonable for the actual cost a financial institution incurs during a transaction.
The decision came after Corner Post, a convenience store and truck stop in North Dakota, filed a suit in 2021 claiming that financial institutions were making more than their fair share from interchange at the expense of merchants.
In the Corner Post v. Board of Governors of the Federal Reserve decision, U.S. Circuit Judge David Stras ruled that the Fed had violated Reg II of the Durbin Amendment by allowing banks and credit unions to factor additional fixed costs into interchange caps instead of the mere cost of the transaction. These fixed costs included fraud protection, software, hardware, labor, etc.
“It does not take much detective work to figure out that the Federal Reserve shall consider marginal costs in setting debit card interchange fees, but not fixed costs,” Stras said in the 11-page ruling. Under this ruling, the Fed will need to rewrite the debit card interchange fee cap without considering these fixed costs in order to be more representative of real costs incurred by financial institutions and must “at a minimum … must sort the costs into those that are transaction-specific and those that are not.”
America’s Credit Unions called the ruling “deeply disappointing” as the new interchange fee limit will ultimately be lower than the previous cap and thus will affect fee income for credit unions and banks across the board.
In response to the ruling, America’s Credit Unions and several other financial services trade organizations issued a joint statement:
“We are deeply disappointed that the Eighth Circuit affirmed the district court’s decision in the Corner Post case. The Durbin Amendment’s government price controls have harmed consumers from the start by making it harder for banks to offer affordable banking services and valuable benefits. Today’s decision threatens to compound that harm by preventing regulated interchange fees from reflecting the real costs banks incur to process transactions, prevent fraud, and protect customer data.
“For more than a decade, corporate megastores have pocketed billions from the Durbin Amendment while ignoring promises to lower prices for consumers. Now, they want to pay even less for the very payment system they rely on every day, leaving banks, credit unions and consumers to shoulder the costs.
“It’s important to remember that this decision is not the last word on these issues. Another federal appellate court is considering similar questions in the Linney’s Pizza case, where the district court upheld the Federal Reserve’s rule. We will continue advocating for an approach that protects consumers and preserves the safe and efficient debit card system they depend on.”
