The Eighth Circuit’s October 26, 2026 unanimous decision in Corner Post, Inc. v. Board of Governors of the Federal Reserve System delivers a significant victory for merchants challenging the Federal Reserve’s regulation of debit card interchange fees. The court affirmed a district court judgment vacating the Federal Reserve’s longstanding 21-cent-per-transaction cap, concluding that the agency failed to follow the Durbin Amendment’s statutory command to base regulated interchange fees on the incremental cost of processing a particular debit card transaction.
The opinion, written by Judge Stras, rests on a textual interpretation of the Electronic Fund Transfer Act’s Durbin Amendment. Congress directed the Federal Reserve to consider the incremental cost of authorizing, clearing, or settling an individual debit transaction while excluding costs that are not specific to that transaction. The Federal Reserve instead adopted a uniform cap that included certain fixed costs, without adequately distinguishing between the two categories.
The decision is also an important application of the Supreme Court’s 2024 decision in Loper Bright Enterprises v. Raimondo. The Eighth Circuit emphasized that courts must independently determine the meaning of a statute and may not defer to an agency’s interpretation merely because the statute is ambiguous. It rejected the Federal Reserve’s approach and remanded the matter for the agency to develop a fee structure consistent with Congress’s instructions.
The practical consequences could be substantial for banks, payment networks, and merchants. However, the ruling does not itself establish a replacement interchange fee schedule, and its practical effect will depend in part on the issuance of the appellate mandate and subsequent court proceedings, including the possible filing of a petition for rehearing en banc before the Eighth Circuit or a petition for certiorari before the Supreme Court and the Federal Reserve’s subsequent proceedings.
Background: The Durbin Amendment and Regulation II
The Durbin Amendment, enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, authorizes the Federal Reserve to regulate debit card interchange fees charged by the cardholder’s bank as long as the bank has more than $10 billion in assets. Interchange fees compensate the bank that issues the debit card for processing transactions and are generally paid through the merchant’s bank.
Under 15 U.S.C. § 1693o-2, the Federal Reserve must establish standards ensuring that interchange fees are “reasonable and proportional” to the issuer’s costs associated with a transaction. Congress also specified which costs the Federal Reserve must consider and which it must exclude.
In particular, the statute distinguishes between:
In 2011, the Federal Reserve adopted Regulation II, establishing a cap of 21 cents per transaction, plus 0.05% of the transaction’s value to account for fraud losses. An additional penny was available to issuers meeting specified fraud-prevention standards.
The regulation effectively established a uniform ceiling rather than a fee structure tailored to the incremental costs associated with individual transactions. The Federal Reserve’s approach included certain fixed costs and other expenses that, in the agency’s view, could properly be considered in setting the cap.
The Federal Reserve has also proposed, but not adopted, a lower cap of 14.4 cents per transaction, plus 0.04% of the transaction’s value and a potential 1.3-cent fraud-prevention adjustment. The Eighth Circuit explained that this pending rulemaking did not affect its assessment of the legality of the existing regulation.
The Litigation and the Supreme Court’s Prior Decision
Corner Post, a North Dakota truck stop and convenience store, challenged Regulation II under the Administrative Procedure Act (APA). It argued that the Federal Reserve had exceeded its statutory authority by including costs Congress expressly prohibited it from considering.
The litigation previously reached the Supreme Court on a threshold issue concerning the statute of limitations. In Corner Post, Inc. v. Board of Governors of the Federal Reserve System, 603 U.S. 799 (2024), the Supreme Court held that an APA claim generally accrues when a plaintiff is injured by final agency action, rather than automatically when the agency first issues the challenged regulation. That decision allowed Corner Post’s challenge to proceed.
On remand, the district court granted summary judgment to Corner Post and vacated the regulation although it stayed the effect of its decision pending appeal. The district court concluded that the Federal Reserve had improperly considered several categories of costs, including fixed costs associated with authorization, clearance, and settlement; network processing fees; fraud-monitoring expenses; and fraud losses.
The Federal Reserve appealed. On October 26, 2026, the Eighth Circuit affirmed the district court’s judgment.
The Eighth Circuit’s Analysis
1. The impact of the Supreme Court opinion in Loper Bright Enterprises
The court began by addressing the appropriate standard of review. Citing Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024), Judge Stras explained that courts must exercise independent judgment when interpreting statutes administered by federal agencies.
The Federal Reserve could not defend its interpretation simply by arguing that Congress had delegated regulatory authority to it. Although Congress authorized the agency to prescribe regulations and establish standards, that delegation did not permit the agency to disregard the statutory limitations on which costs it could consider.
The court also rejected the availability of deference under the principles associated with Skidmore v. Swift & Co., 323 U.S. 134 (1944). In the court’s view, the Federal Reserve’s interpretation was not entitled to persuasive weight because the agency had adopted an interpretation inconsistent with the better reading of the statute.
The opinion thus illustrates an important distinction after Loper Bright: Congress may delegate policymaking authority to an agency, but courts independently determine the legal boundaries of that delegation based on any restrictions imposed by Congress in its delegation of authority.
2. “Incremental cost” means the marginal cost of an additional transaction
The central question was what Congress meant by “incremental cost.”
The court concluded that the term refers to the marginal cost attributable to processing one additional debit card transaction. In economic terms, marginal cost measures the increase in total cost resulting from producing an additional unit of output.
Here, the relevant unit is a single debit transaction.
The court supported its interpretation by examining economic literature, dictionaries, and the statutory text. It emphasized Congress’s reference to the incremental cost of “a particular electronic debit transaction.” In the court’s view, the singular wording focuses the inquiry on the cost of one specific transaction, rather than a bank’s overall expenses or the average cost of processing a large volume of transactions.
The surrounding statutory language reinforced that conclusion. Congress required the Federal Reserve to distinguish transaction-specific incremental costs from other costs that are not specific to a particular transaction.
The court reasoned that this distinction separates marginal costs from fixed costs. The latter do not vary with the quantity of transactions processed and therefore cannot be included merely because they are part of the issuer’s overall cost of operating its debit card business.
3. Fixed costs cannot be included simply because they support debit card processing
The court illustrated the distinction with an example involving fraud-detection software.
Suppose a bank purchases software for a fixed, upfront fee to identify potentially fraudulent debit card transactions. The bank incurs that expense regardless of whether it processes one transaction or millions. The expense is therefore a fixed cost, not a marginal cost attributable to an additional transaction.
The same analysis can apply to hardware, software, labor, and network connectivity, depending on how the relevant expense varies with transaction volume.
The court acknowledged that the same category of expense may be fixed for one bank but incremental for another. For example, a bank that handles fraud detection internally may incur fixed expenses, while another bank that outsources the service may pay a fee for each transaction processed.
That difference might seem economically arbitrary (since it might motivate a debit card issuer to outsource certain functions which might enable the issuer to include the outsourcing fees in the swipe fees costs which would otherwise be non-recoverable if performed internally even though the functions may be performed less expensively if not outsourced), but the court concluded that the statutory text requires the distinction to be respected. Congress expressly excluded costs that are not specific to a particular debit transaction, and the Federal Reserve could not override that instruction simply because a different approach might appear more practical.
This reasoning is especially important because the court did not treat the Federal Reserve’s responsibility to establish reasonable interchange fees as an independent license to include any costs that the agency considered relevant to debit card operations.
4. A uniform cap does not adequately implement the statutory distinction
The court also focused on the structure of Regulation II.
The 21-cent cap applied to every covered transaction, notwithstanding differences in the incremental costs associated with processing those transactions. The court viewed this as evidence that the Federal Reserve had not adequately carried out Congress’s instruction to distinguish between transaction-specific incremental costs and excluded costs.
Congress directed the Federal Reserve to establish standards, in the plural, rather than simply select a uniform number without the required cost analysis.
The court did not, however, hold that interchange fees must precisely equal the marginal cost of every individual transaction, a holding which would have created an impractical standard for the Federal Reserve to implement. It recognized that the statute requires fees to be reasonable and proportional, not mathematically identical to marginal cost in every case.
The Federal Reserve retains some flexibility in designing an appropriate regulatory structure. For example, the court suggested that the agency could consider a proxy, potentially including average variable cost, if that proxy bears a reasonable relationship to the marginal costs incurred by cardholder banks in processing debit transactions.
The agency must nevertheless distinguish between costs that are transaction-specific and those that are not. It cannot simply select a cap and assume that the resulting number is sufficiently close to the statutory target.
The Court’s Holding and Remedy
The Eighth Circuit affirmed the district court’s judgment vacating the existing 21-cent cap and remanded the matter to the Federal Reserve to develop a fee structure consistent with the statute.
The court did not establish a new cap or direct the agency to adopt the previously proposed 14.4-cent cap. Nor did it decide Corner Post’s other grounds for challenging Regulation II, having concluded that the existing rule must be set aside.
There is also an important procedural qualification. The court explained that its decision would not become effective until issuance of the mandate. Under the Federal Rules of Appellate Procedure, the mandate ordinarily follows the deadline for seeking rehearing or an order denying a timely rehearing petition, subject to the applicable rules.
Accordingly, the decision should not be understood as automatically changing the interchange fees charged on the day the opinion was issued. The timing and implementation of any regulatory changes will depend on the subsequent proceedings.
Implications for Banks, Payment Networks, and Merchants
The opinion has potentially significant implications for the debit card payment system.
For banks and credit unions that issue debit cards, the decision raises questions about how the Federal Reserve will calculate permissible interchange fees if the existing cap is ultimately vacated without a replacement immediately taking effect. A new methodology could affect issuers differently depending on their transaction volumes, technology investments, fraud-prevention arrangements, and processing expenses.
For merchants, the decision represents a judicial rejection of the Federal Reserve’s longstanding approach to limiting debit card interchange fees. Merchants have argued that interchange fees increase the cost of accepting electronic payments, and a revised regulatory framework could materially affect those costs.
Payment networks and other participants in the debit card ecosystem will also have an interest in the outcome, because interchange fee structures influence the economics of payment processing and the allocation of costs among market participants.
The opinion does not establish that every category of fixed expense is necessarily excluded in every conceivable regulatory context. Rather, its holding turns on the statutory distinction between incremental costs associated with a particular transaction and costs that are not specific to that transaction. The classification of particular expenses will therefore remain important as the Federal Reserve considers its next steps.
The ruling also underscores the continuing significance of Loper Bright. Agencies exercising delegated authority must remain within the boundaries Congress established, and courts will independently evaluate whether regulations comply with those boundaries.
The Linney’s Pizza Appeal Presents a Contrary View of the Durbin Amendment
The Eighth Circuit’s decision in Corner Post comes against the backdrop of a closely related case in which a district court reached the opposite conclusion. In Linney’s Pizza, LLC v. Board of Governors of the Federal Reserve System, No. 3:22-cv-00071 (E.D. Ky. Sept. 15, 2025), the U.S. District Court for the Eastern District of Kentucky granted summary judgment to the Federal Reserve and rejected a merchant’s challenge to Regulation II. The court concluded that the Federal Reserve’s debit interchange fee regulation was neither contrary to law nor arbitrary and capricious.
The Kentucky court emphasized that the Durbin Amendment requires the Federal Reserve to establish interchange fees that are “reasonable and proportional” and to consider the statute’s various requirements together. It rejected Linney’s Pizza’s argument that the agency’s treatment of costs required the regulation to be set aside. The court also reasoned that Congress contemplated that debit card transactions would carry some interchange fees and that the Federal Reserve had adequately considered the similarities and differences between debit card transactions and checking transactions.
Linney’s Pizza appealed to the U.S. Court of Appeals for the Sixth Circuit, where the case is docketed as No. 25-6038. The Sixth Circuit heard oral argument on October 22, 2026, and the appeal is awaiting decision.
The Eighth Circuit’s October 26, 2026 decision in Corner Post sharpens the contrast between the two cases. Whereas the Kentucky district court accepted the Federal Reserve’s approach, the Eighth Circuit affirmed a judgment holding that the agency had impermissibly considered costs that Congress required it to exclude. The Sixth Circuit’s forthcoming decision will therefore be important not only to the parties in Linney’s Pizza, but also to the future of Regulation II and the legal framework governing debit card interchange fees.
The ultimate significance of the disagreement will depend on how the Sixth Circuit addresses the statutory text, the Federal Reserve’s delegated authority, and the Supreme Court’s intervening decision in Loper Bright Enterprises v. Raimondo. Until the Sixth Circuit rules, the conflict between the district court decisions remains unresolved at the appellate level.
If the Sixth Circuit affirms the District Court opinion in Linney’s Pizza, there will then likely be a conflict between the Sixth and Eighth Circuits which will increase the likelihood of a Supreme Court review of this issue.