Contradictory rulings by two different federal courts have created uncertainty regarding the validity of the framework the Federal Reserve uses to set interchange rates for debit card transactions. One ruling invalidated the framework while the other ruling upheld it. The Federal Reserve is appealing the decision that invalidated the framework, but it is unlikely this issue will be resolved quickly.
When the Durbin Amendment of the Dodd-Frank Act went into effect in 2011, it gave the Federal Reserve the power to regulate debit card interchange fees. Under Regulation II (Debit Card Interchange Fees and Routing), the Federal Reserve capped debit card interchange at 21 cents plus 0.05% of the value of the transaction, and it allowed for an additional one-cent fraud-prevention adjustment fee. The fee cap only applies to debit card issuers with more than $10 billion in assets.
On August 6, 2025, the US District Court for the District of North Dakota found that the Regulation II debit card interchange fee framework is invalid because it exceeds the Federal Reserve's authority under the Durbin Amendment. Specifically, the court found that the framework improperly includes costs unrelated to specific transactions, such as the fraud prevention adjustment, in calculating the interchange fee cap. Additionally, it found that adopting a standard fee is not consistent with the Amendment because it states that interchange charged on a debit transaction must be reasonable and proportional to the cost incurred by the bank that issued the debit card. The Court vacated Regulation II but stayed its order pending the resolution of any appeal to the US Court of Appeals for the Eighth Circuit.
A few weeks later, on September 12, 2025, the US District Court for the Eastern District of Kentucky reached the opposite conclusion and upheld the Regulation II debit card interchange fee framework. It found that the Durbin Amendment permits consideration of certain transaction-related costs when setting the cap and that Regulation II's fee framework can account for items such as fixed authorization expenses, fraud losses, monitoring systems, and network processing fees. The court also found that adopting a standard fee is reasonable given the scale of debit-card transactions.
The Federal Reserve is appealing the ruling handed down by the US District Court for North Dakota which vacated its regulation of debit card transaction fees. Resolution of the conflicting decisions is complicated by the fact that any appeals regarding the North Dakota decision will be handled by the US Court of Appeals for the Eight Circuit and any appeals regarding the Kentucky decision will be handled by the US Court of Appeals for the Sixth Circuit.
In 2023, the Federal Reserve proposed reducing the debit card interchange fee cap about 30%, and it proposed a method for updating the interchange fee cap every other year going forward. The future of this proposal is unclear given the regulatory uncertainty regarding Regulation II's debit card interchange fee framework.
For more information on the US District Court – North Dakota ruling invalidating Regulation II's debit interchange fee framework see this analysis from Ballard and Spahr. For more information on the US District Court – Eastern Kentucky's ruling upholding Regulation II's debit interchange fee framework see this analysis from the ABA Banking Journal. For more information on the Federal Reserve's 2023 proposal regarding the debit interchange fee cap see this Verisave blog on the Federal Reserve 2023 debit interchange proposal.
