In a blow to consumer protection and fair-market competition, 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.

As a result of the district court’s judgement this week, the Fed’s 2011 interchange rule has been vacated but covered debit issuers will still need to comply with Regulation II despite the rule being declared unlawful. Debit interchange remains capped under existing Reg II, pending resolution of a Fed appeal to the Eighth Circuit.

The court’s order also does not prevent the Fed’s pending Reg II rulemaking — which would lower the debit interchange fee — from taking effect if finalized. The California Credit Union League and Nevada’s Credit Unions have been actively involved in this issue, having previously submitted a comment letter in May 2024 to the Federal Reserve opposing the proposed Regulation II rule. It argued that:

• The proposed rule creates revenue constraints and competitive pressures for credit unions.
• Codifying automatic updates to the interchange fee cap would freeze out stakeholders and consumers.
• There is insufficient evidence that merchants pass savings to consumers.
• There are unintended consequences for consumers, particularly in underserved communities.
• The proposal will increase challenges for exempt credit unions.
• The proposal would impede the ability to cover significant technology investments and fraud prevention costs.

“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, president and CEO of America’s Credit Unions. “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.”

Retailers have lobbied aggressively to shift payment system costs onto credit unions and banks, while reaping the benefits of interchange without making comparable investments in fraud prevention. While America’s Credit Unions continues to oppose the need for interchange regulation in the first place, this ruling marks a step backward in ensuring a safe, sustainable payments ecosystem. America’s Credit Unions will continue to fiercely defend credit unions against the dilution of interchange fee income on all fronts.

Notably, the decision leans on Loper Bright Enterprises v. Raimondo, which overturned the “Chevron doctrine,” eliminating agency deference and opening the door for more litigation. Litigation on this issue began about 14 years ago.