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Credit unions would see a reduction in their debit interchange fee income in the coming months as the result of a federal court ruling Wednesday.
The U.S. District Court for the District of North Dakota sided with large retailers in Corner Post v. Fed, ruling that the Federal Reserve exceeded its authority when it included fraud-loss adjustments and other essential costs in its 2011 debit interchange rule.
America’s Credit Unions said Thursday the decision “effectively rewards retailers who’ve long pushed to slash interchange costs, even as they bear no statutory responsibility for protecting consumer payment data.”
The results of the ruling are complicated. On one hand, the Fed’s 2011 interchange rule has been vacated. But AmCU said covered debit issuers will still need to comply with its Regulation II. Debit interchange remains capped under the existing Regulation II, pending resolution of a Fed appeal to the Eighth Circuit.
The Fed's pending Regulation II rulemaking — which would lower the debit interchange fee — can still take effect if finalized.
The National Retail Federation (NRF) said the ruling affirmed the assertion of retailers in their 2011 lawsuit that the Fed set the cap on interchange fees too high in its 2011 rule.
Stephanie Martz, the NRF’s chief administrative officer and general counsel, said the decision would save retailers “hundreds of millions of dollars.”
The NRF was not party to the suit, but Martz is on the legal team for retailers.
“As merchants have argued for 14 years, the Fed’s broad attempt to allow big banks to essentially charge rent-seeking fees for debit card transactions is illegal,” Martz said.
The 2010 Durbin Amendment required the Fed to adopt regulations resulting in debit card swipe fees that were “reasonable” and “proportional” to banks’ costs. The Fed in 2011 set the cap, which applies only to financial institutions with at least $10 billion assets, at 21 cents per transaction plus 1 cent per transaction for fraud prevention and 0.05% for fraud loss recovery.
The Durbin amendment also requires the Fed to review the formula every two years, but retailers have said downward adjustments still haven’t kept up with falling costs for banks and credit unions.
The NRF said a Fed survey found banks’ allowable costs were 7.7 cents per transaction in 2009, or about a third of the cap. By 2021, a Fed survey showed the average cost had fallen to 3.9 cents per transaction, or about 20% of the cap.
The NRF said banks charged about 45 cents to process a typical debit transaction before 2010, and since then the Durbin Amendment has saved merchants $9.4 billion a year, with studies showing 70% of the savings has been passed on to consumers.
AmCU President/CEO Jim Nussle said retailers have not lived up to their promise that the Durbin Amendment would result in savings to consumers.
“We haven't seen that savings in nearly 15 years, while fraud continues to grow. Instead, big box retailers and merchants have lined their own pockets without any statutory responsibility to protect consumers from fraud,” Nussle said.
Debit swipe fees totaled $38.7 billion in 2024 and total swipe fees have more than doubled over the past decade to a record $187.2 billion.
AmCU said the decision leans on Loper Bright Enterprises v. Raimondo, which overturned the “Chevron doctrine,” eliminating agency deference and opening the door for more litigation. Litigation on this issue began about 14 years ago.
Contact Jim DuPlessis at JDuPlessis@cutimes.com.
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