Eighth Circuit Vacates Fed’s 21-Cent Debit-Card Fee Cap
The Eighth Circuit struck down the Federal Reserve’s 21-cent cap on debit-card fees.
Why it matters: This decision may reshape fee policies governing financial transactions, affecting compliance for banks and merchants nationally.
- The U.S. Court of Appeals for the Eighth Circuit vacated the Federal Reserve’s 21-cent debit-card interchange fee cap on October 26, 2026.
- The court found the Fed exceeded its authority by including fixed costs in fee calculations, contrary to the Durbin Amendment's mandate.
- Federal Reserve data showed average transaction costs of 4.1 cents versus an average capped fee of 23 cents per transaction.
- The ruling does not take immediate effect; the current fee cap remains until the court issues its formal mandate.
On October 26, 2026, the U.S. Court of Appeals for the Eighth Circuit overturned the Federal Reserve's 21-cent cap on debit card interchange fees, known as Regulation II. The court ruled that the Fed exceeded its authority by factoring in fixed costs into the fee cap, which the Durbin Amendment explicitly excludes.
The Durbin Amendment, adopted as part of the 2010 Dodd-Frank Act, requires that interchange fees be "reasonable and proportional" to the issuer's incremental transaction costs, specifically authorization, clearing, and settlement fees per transaction. The court underscored that fixed costs unrelated to individual transactions should not be included in this calculation.
According to the Federal Reserve's 2023 survey, covered banks had an average authorization, clearing, and settlement cost of 4.1 cents per transaction, significantly lower than the 21-cent cap plus 0.05% of the transaction amount. The data showed an average covered fee of 23 cents per transaction, highlighting the discrepancy between actual costs and capped fees (Trestlewire).
Retailers and industry groups welcomed the decision. Leslie G. Sarasin of FMI called it an "important victory for grocery customers and food retailers" battling high swipe fees, while Monica Welt of the Retail Litigation Center described it as a "significant victory for every retailer and consumer." However, the ruling does not yet take effect and the existing cap remains in place until the court formally issues its mandate.
The ruling is expected to trigger a reassessment of interchange fee policies, potentially lowering costs for merchants and consumers. It also raises compliance and regulatory considerations for banks in recalibrating fees in line with a transaction-specific cost analysis.
By the numbers:
- 21 cents — Federal Reserve’s debit-card fee cap vacated
- 4.1 cents — Average processing cost per transaction per Fed survey
- 23 cents — Average covered debit-card fee per transaction
- 100.7 billion — Debit and prepaid card transactions in 2023
- $4.7 trillion — Total transaction value in 2023
Yes, but: The existing fee cap remains effective until the court issues its formal mandate, delaying immediate impact.
What's next: Watch for the Federal Reserve's forthcoming revision of the interchange fee rule and potential appeals from affected parties.