Eighth Circuit Vacates Federal Reserve’s Debit-Card Interchange Fee Cap

On October 26, the U.S. Court of Appeals for the Eighth Circuit affirmed a federal district court’s judgment vacating the Federal Reserve Board’s 21-cent cap on debit-card interchange fees. The court held that the Board exceeded its authority under the Durbin Amendment when it included costs that were not specific to individual debit-card transactions.

The Durbin Amendment directs the Board to consider the incremental costs of authorizing, clearing, and settling a particular transaction when setting interchange-fee standards. The court interpreted “incremental cost” as the added cost of processing one additional transaction. It concluded the Board’s cap improperly included fixed costs, such as certain software, hardware, labor, and network expenses, that may not rise with each transaction. The court also found that a single uniform cap did not account for differences among issuers’ transaction-specific costs.