Appeals court strikes down the Fed's 21-cent cap on debit card swipe fees

A federal appeals court ruled Monday that the Federal Reserve must rewrite its cap on what large banks may charge merchants to process debit card transactions, upholding a lower-court decision that threw out the 21-cent limit. The U.S. Court of Appeals for the Eighth Circuit said the Fed broke the Durbin Amendment to the 2010 Dodd-Frank Act by counting fixed costs, such as hardware, software, labor and fraud-prevention costs, when the law allows only the incremental cost of each transaction. Writing for a three-judge panel, Judge David Stras said the Fed may use an estimate such as average variable cost rather than price every transaction. The case was brought in 2021 by Corner Post, a North Dakota truck stop and convenience store. The decision takes effect only once the court issues its mandate, which comes after the deadline for seeking rehearing; parties in cases involving federal agencies get 45 days.

Why it matters: The Fed first set the cap in 2011 for debit card issuers with $10 billion or more in assets. In 2023 it proposed lowering the cap, which for an average-sized $50 transaction would have cut the maximum fee from 24.5 cents to 17.7 cents.