Part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Regulation II (Reg II) put a cap on debit interchange fees, with a set rate of 21 cents per transaction plus an ad valorem rate of .05 percent and a fraud-prevention rate of .01 percent. A 2022 follow-on rule required each routing network to accept two different interchange fee processors.
The Federal Reserve System (the Fed) manages the implementation of Reg II (sometimes referred to as the Durbin Amendment) and is currently attempting to reduce the rate to 14.4 cents per transaction plus an ad valorem rate of .04 percent and a fraud-prevention rate of .013 percent.
The goal of Reg II was to promote fee savings for retailers, who would then—theoretically—pass those savings on to consumers. However, data from the Fed’s own research shows that less than 2 percent of retailers lowered prices, while 22 percent actually raised prices. Big box retailers retained fee savings to the tune of $42 billion—a win for large corporations and a loss for all other stakeholders.
Further, these government-mandated price caps led to a dramatic reduction in fee-free checking accounts and virtually eliminated debit card rewards programs. They also reduced access to checking accounts among lower-income individuals. As is common in financial regulatory policy, mandates most harm those they purport to help.
A few recent developments could potentially change the debit interchange fee-cap landscape.
August 2025: Corner Post, Inc. v. Board of Governors of the Federal Reserve System
In this case, the U.S. District Court of North Dakota ruled that the Fed exceeded its authority in its implementation of Reg II, stating, “the Court will vacate Regulation II, 76 Fed. Reg. 43,394 (July 20, 2011), because it is contrary to law and was promulgated in excess of the Board’s authority.” The judge also issued a stay in the vacatur, meaning the rule will stand as originally implemented for the time being so as not to cause tumult in the debit interchange markets while the ruling goes through appeal.
This may appear as a win for banks. However, the judge stated that the Fed used an excess of authority when it came to the inclusion of cost categories not strictly mandated by the statute (e.g., network processing fees, excessive fraud-loss fees). The judge also took issue with the fee structure, which allowed for a fixed rate of 21 cents per transaction, arguing that the statute indicates the need for an ad valorem rate. Altogether, the judge’s ruling would necessitate a further reduction in debit interchange fees and an overhaul of Reg II.
This could lead to a few different outcomes—one being a win on appeal from the Fed, thereby negating the judge’s decision; and another a requirement to rewrite the rule, should the ruling stand.
September 2025: Linney’s Pizza, LLC v. Board of Governors of the Federal Reserve System
A separate ruling throws an additional wrench into the works. Linney’s Pizza in Kentucky sued the Fed for its debit interchange rulemaking. In this case, the judge sided with the Fed, saying that its rulemaking aligned with statute and did not exceed its authority. This directly contradicts the ruling from the federal judge in North Dakota, creating an unusual situation in which two federal courts come to opposite conclusions on the same topic. If both rulings survive on appeal, it will create a circuit split—requiring that the case go to the U.S. Supreme Court.
Trump’s EO: Unleashing Prosperity Through Deregulation
The Trump administration’s executive order (EO) “Unleashing Prosperity Through Deregulation”—the focus of several recent R Street pieces—states that 10 regulations should be repealed for every new regulation implemented. In conjunction with the EO, the Department of Justice has convened an Anticompetitive Regulations Task Force to push a full repeal of Reg II. Indeed, Reg II is a prime example of the harms of overburdensome regulations, especially to consumers. However, a repeal would require either major rulemaking from the Fed to rescind the rule as written or action from Congress to repeal the Durbin Amendment.
Conclusion
While the ultimate outcome remains to be seen, the current political landscape provides an incredible opportunity to deregulate the debit interchange market and address myriad other issues on the financial services deregulatory wish list. While there has been speculation that the Trump administration may lean more toward economic populism, this has yet to affect the administration’s decision making as it relates to financial regulatory policy. However, if broader economic winds should change, attitudes could shift alongside them—which is why any push for deregulation should be bold and swift.