Regulation II
Corner Post Inc. v. Board of Governors of the Federal Reserve System
Date: Oct. 27, 2026
Issue: Whether Regulation II’s (Reg. II) standard for reasonable and proportional interchange fees exceeds the Federal Reserve’s (the Fed) statutory authority and contradicts the Durbin Amendment.
Case Summary: In a unanimous decision, an Eighth Circuit panel affirmed a North Dakota Federal Court decision that vacated Reg. II.
Previously, Judge Daniel M. Traynor of the U.S. District Court for the District of North Dakota vacated Reg. II, holding that the rule is contrary to law and the Fed exceeded its statutory authority. Judge Traynor temporarily stayed the decision to give the Fed time to appeal his decision and “to prevent interchange transaction fees from becoming a completely unregulated market.” Judge Traynor later stayed the vacatur of Reg. II pending the resolution of the appeal, “to prevent interchange transaction fees from becoming a completely unregulated market.
On Dec. 30, 2025, the Fed filed its opening brief in the Eighth Circuit and argued that the Durbin Amendment gave it broad discretion, that it correctly included the costs at issue, and that it properly adopted uniform fee standards. In response on Feb.13, 2026, Corner Post contended that Reg. II is contrary to law, exceeds the Fed’s authority, and its fee standard is arbitrary and capricious. ABA also filed a coalition amicus brief urging the Eighth Circuit to reverse. ABA argued that including certain costs in the interchange fee cap aligns with the Durbin Amendment’s text and purpose; that slashing the interchange fee cap would not help consumers and would harm the debit card market; and that affirming the district court would disturb reliance interests by rejecting settled precedent and destabilizing the debit card market. On Mar. 23, 2026, the Fed filed its reply brief arguing that it acted under the best reading of the statute and within the bounds of delegated discretion, and that supposed procedural irregularities do not provide an independent basis for affirming the district court’s order.
The panel affirmed, ruling the Fed exceeded its statutory authority by failing to distinguish between incremental costs and fixed costs when setting interchange fees under Reg. II. Citing the Supreme Court’s Loper Bright ruling overturning Chevron deference, the panel emphasized that courts must independently determine a statute’s meaning and may not defer to an agency’s interpretation merely because the statute is ambiguous. It rejected the Fed’s approach and remanded the matter for the agency to develop a fee structure consistent with Congress’s instructions.
The panel explained that the Durbin Amendment requires the Fed to consider the incremental cost of authorizing, clearing, or settling a single debit card transaction. The Durbin Amendment also prohibits the Fed from considering fixed costs that do not relate to a specific transaction. The panel interpreted “incremental cost” to mean “marginal cost,” or the added expense a bank incurs when it processes one more debit card transaction. To support its interpretation, the panel pointed to the Durbin Amendment’s reference to “a particular electronic debit transaction,” which focuses on the cost of a single transaction rather than a bank’s total operating expenses.
The panel also emphasized that Congress required the Fed to separate costs tied to individual transactions from fixed costs that do not change with transaction volume. However, the panel found that the Fed failed to define incremental cost when it adopted Reg. II. Instead, the Fed set a 21-cent fee cap per transaction, with adjustments based on transaction value and compliance with fraud-prevention standards. The panel concluded the Fed could not ignore costs Congress required it to consider or include costs Congress expressly excluded.
Next, the panel ruled the Fed improperly included fixed costs when calculating Reg. II’s interchange fee cap, contrary to the Durbin Amendment. The panel explained that expenses such as hardware, software, labor, and network connectivity may qualify as fixed costs because they do not vary with the number of transactions a bank processes. However, these same expenses may qualify as incremental costs if a bank pays for them on a per-transaction basis. The panel emphasized that the Durbin Amendment requires the Fed to account for these differences rather than impose a uniform fee cap without distinguishing between fixed and incremental costs. The panel also explained that interchange fees need not match marginal costs exactly. The Fed may use reasonable estimates, such as average variable costs, but must first separate transaction-specific costs from fixed costs when setting interchange fee standards.
Bottom Line: While the Eighth Circuit vacated Reg. II, the Sixth Circuit has yet to issue its decision in Linney’s Pizza. There, a Kentucky federal court granted summary judgment to the Fed and rejected the merchant’s challenge to Reg. II.
Document: Opinion
