BISMARK, N.D.—The U.S. District Court for the District of North Dakota sided with large retailers in Corner Post v. Fed, ruling that the Federal Reserve exceeded its authority when it included fraud-loss adjustments and other essential costs in its 2011 debit interchange rule.
This decision effectively rewards retailers who’ve long pushed to slash interchange costs, even as they bear no statutory responsibility for protecting consumer payment data.
"By excluding fraud losses and other costs from the interchange calculation, this court decision creates more uncertainty that will ultimately hurt consumers,” said Jim Nussle, America's Credit Unions president/CEO. “Proponents of the Durbin Amendment claimed consumers would see savings with this government-imposed price control on interchange. We haven't seen that savings in nearly 15 years, while fraud continues to grow. Instead, big box retailers and merchants have lined their own pockets without any statutory responsibility to protect consumers from fraud."
Lawmakers had only permitted banks to charge retailers interchange fees that would cover incremental costs of processing debit card transactions on card networks such as Visa Inc. and Mastercard Inc. under the 2010 Dodd-Frank Durbin Amendment, Judge Daniel M. Traynor of the US District Court for the District of North Dakota said in a Wednesday order, Bloomberg Law reported.
But the Fed exceeded its authority by allowing fraud-prevention and other costs to be included in the interchange fee calculation when it finalized rules in 2011, Traynor said. The payment card networks set the fees, with banks and card issuers retaining most of the money, Bloomberg Law added.
“Congress did not hide an ‘easter egg’ of a third cost category in the Durbin Amendment, particularly when those additional costs would benefit banks at the expense of merchants and consumers,” he wrote.
DCUC's Response
DCUC President/CEO Anthony Hernandez expressed "deep concern" that the ruling will harm consumers and community financial institutions while rewarding mega-retailers.
“We are deeply disappointed in the court’s decision. It effectively resurrects a failed federal Durbin Amendment experiment – a policy that led to higher costs for consumers, the elimination of rewards programs, and reduced access to affordable credit,” Hernandez said, referencing the well-documented consequences observed after the original debit card price controls took effect.
Hernandez emphasized the judge’s ruling undermines the safety and fairness of the payments system. By barring interchange fees from covering fraud-prevention and security costs, the decision strips away critical funding for protecting consumers’ data and transactions, DCUC warned.
“Interchange fees aren’t corporate profits – they fund secure, affordable financial services in communities that big banks often overlook,” noted Jason Stverak, DCUC’s chief advocacy Officer. “Slashing this revenue puts military financial readiness at risk — and by extension, our national security”.
DCUC said it is concerned the court has given large retailers a "free ride," as the ruling allows merchants to benefit from America’s debit payment infrastructure without paying their fair share to maintain and protect it.
DCUC outlined what it sees as the key issues and risks from the decision:
- Harm to Consumers: "The Durbin Amendment’s price controls have not delivered savings to everyday Americans. Studies found that 76% of merchants did not pass on any savings from the Fed’s earlier debit fee cap to customers. Instead, consumers saw higher costs, the loss of free checking accounts and rewards programs, and reduced access to credit following Durbin’s implementation. DCUC is concerned the court’s decision will compound these negative outcomes."
- Weakened Payment Security: "Interchange fees currently fund essential fraud prevention and cybersecurity programs that keep transactions safe. Removing the allowance for security costs means fewer resources to fight fraud, just as cyber threats and data breaches are growing. The ruling effectively forces financial institutions to shoulder all fraud costs, letting giant retailers evade responsibility for safeguarding the payments system."
- Threats to Military Communities: "Many defense credit unions rely on interchange revenue to provide low-cost financial services that directly support U.S. service members and veterans. These funds underwrite zero-interest emergency loans, early pay for deployed troops, free financial counseling, and other critical resources military families depend on. Reducing interchange fees could threaten defense credit unions’ ability to offer these resources, which are crucial for the financial readiness that directly affects our service members’ mission readiness. In short, DCUC believes this ruling endangers the financial well-being of military families who already face unique challenges."
- Unfair Advantage to Big-Box Retailers: "DCUC asserts that the only winners from undoing the swipe fee cap are large multinational retailers – at the expense of consumers and smaller financial institutions. The ruling lets big retail chains pad their profit margins by shifting payment processing costs onto credit unions and their members. This outcome is fundamentally unfair and anti-consumer, especially when past evidence shows retailers kept the windfall from lower swipe fees instead of lowering prices for the public."
DCUC said it urges the Federal Reserve to "vigorously appeal this misguided decision" and use the stay on the ruling to prevent "chaos" in the debit market.
“Maintaining a regulated interchange framework is essential so that credit unions can continue offering the safe, secure, and convenient 24/7 payment services that Americans – especially military members – have come to expect,” said Stverak.
“We call on policymakers and regulators to remember the lessons of Durbin’s failures and to stand with credit unions in protecting consumers,” said Hernandez. “Our nation’s heroes and hardworking families should not be collateral damage in retailers’ relentless campaign to pad their profits.”
“We will continue to fight for those who serve our country,” Hernandez reminded, “because every military family deserves financial security and support – not new obstacles – in exchange for their service.”