Federal Court Strikes Down Reg II Interchange Fee Standard
Posted: Aug 13 2025
A North Dakota federal court has invalidated Regulation II’s standard for setting debit interchange fees, finding that it permitted interchange fees at levels higher than federal statute allows and violated congressional intent. However, the court temporarily stayed its action pending an anticipated appeal by the Federal Reserve.
A group of North Dakota retailer trade associations and truck stop Corner Post sued the Fed in 2021 on the grounds that, in Reg II, the Fed exceeded its statutory authority to set interchange fees that are “reasonable and proportional to the cost incurred by the issuer with respect to the transaction.”
In his ruling, U.S. District Court Judge Daniel Traynor sided with the plaintiffs, finding that the Dodd-Frank Act’s Durbin Amendment “clearly prohibits” the consideration of any costs except for incremental authorization, clearance or settlement (ACS) costs in setting fees.
Still, while ruling against the Fed, Traynor criticized the Durbin Amendment as confusing and not particularly well written.
“When one wonders if studying grammar and English’s oddities is worthwhile, this case answers with a resounding ‘yes,’” he wrote. “It exemplifies how precise grammar and syntax might have avoided over a decade of legal battles.”
Traynor vacated Reg II but 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.”