In a ruling that could reshape payment costs for the retail sector, a federal judge has struck down the Federal Reserve’s regulation on debit card swipe fees.
The Aug. 7 decision, paused pending appeal, has been greeted as a win by grocery retail advocates who have long argued that inflated fees drive up their costs – and, ultimately, consumer prices.
The Ruling
U.S. District Judge Daniel Traynor, presiding over Corner Post Inc. v. Board of Governors of the Federal Reserve System, found the Fed’s Regulation II unlawful.
First introduced in 2011 under the Durbin Amendment of the Dodd-Frank Act, the rule capped debit card swipe fees at 21 cents per transaction, plus 0.05 percent for fraud loss recovery and 1 cent for fraud prevention.
Traynor ruled the Fed exceeded its authority by factoring in costs that Congress never authorized, such as certain fixed costs and broader fraud losses. In his view, this inflated the cap beyond what the law intended.
The case itself has had a long road. First filed in 2021 by Corner Post, a North Dakota convenience store, it was dismissed under a six-year statute of limitations. But in 2024, the U.S. Supreme Court revived the case, allowing it to proceed.
For now, the ruling is on hold while the Fed considers an appeal — potentially to the Supreme Court. That pause keeps the current cap in place, avoiding an unregulated market in the meantime.
Why Grocery Retailers Care
Swipe fees are a significant pain point for grocers. The National Retail Federation (NRF) estimates that credit and debit card fees cost U.S. retailers and consumers more than $170 billion annually, with debit fees making up $36.3 billion in 2023.
For grocery stores – where margins are razor-thin and transaction volumes are high – these fees often rank as the second-highest operating cost after labor. NRF says they can add more than $1,000 a year to the average family’s grocery bill.
The Fed floated a proposal in 2023 to lower the cap to 14.4 cents per transaction, though that remains pending. If implemented, such a change could give grocers breathing room to cut prices, invest in upgrades and counter inflationary pressures.
Industry Reaction
FMI – The Food Industry Association has been pushing for swipe fee reform for years. President and CEO Leslie G. Sarasin called the ruling “a critical victory” for grocery customers and food retailers.
“FMI applauds the federal court ruling that confirmed merchants’ longstanding arguments that the debit card swipe fee cap that the Federal Reserve established was too high,” Sarasin said in a statement. She noted that the Fed’s own data shows banks’ processing costs have fallen sharply since 2011, yet the cap never moved.
FMI has formally petitioned the Fed to revise the cap, filing in December 2022 and later submitting comments on the Fed’s 2023 proposal. Sarasin says the goal is clear: a “reasonable and proportional” debit fee that can be updated regularly to reflect actual costs.
The National Grocers Association also supported the ruling and urged further action.
The Bigger Picture
The swipe fee battle pits retailers against banks in a fight over who bears the cost of electronic payments. Retailers argue the fees are non-negotiable and hit high-volume industries the hardest. Banks – and groups such as the Bank Policy Institute – counter that fees fund fraud prevention, security and innovation.
The 2011 Durbin Amendment aimed to keep fees in check, but retailers say the 21-cent cap is still far from proportional to banks’ actual costs. Economists estimate the Durbin rule has saved merchants about $8 billion a year, with most of those savings passed on to shoppers – but retailers argue more is possible.
[RELATED: FMI Asks Fed To Lower Swipe Fees]
What Happens Next
The case now heads into the appeals process, which could take months or years. The Fed’s separate proposal to lower the cap could still move forward, regardless of the court outcome, offering a potential win for retailers in the near term.
If the ruling stands, it could pave the way for lower swipe fees across the board. For grocers, that means lower operating costs and – possibly – lower prices for customers. Banks, however, warn that such cuts could limit resources for fraud protection and payment system improvements.
For now, the current cap holds. But the legal and regulatory momentum suggests change is coming. Whether it’s through the courts or Fed rule-making, grocery retailers are watching – and preparing for a shift that could alter the economics of every debit card transaction.