Dueling decisions on debit interchange

Judge Gregory F. Van Tatenhove, a federal district court judge in Kentucky, upheld the Federal Reserve Board's debit card interchange cap, asserting that the Fed rightfully balanced competing interests in setting the cap. This follows a conflicting decision handed down last month by a federal district court judge in North Dakota.

The Fed was tasked with setting a debit card interchange cap under the Durbin Amendment to the 2010 Dodd-Frank Act. After much back and forth between the Fed, financial institutions and merchants, the cap was set at 21 cents plus 5 basis points, with a 1 cent adjustment for FIs that had implemented fraud prevention steps.

Linney's Pizza, a restaurant located in Frankfort, Ky., challenged the Fed, arguing that the costs it considered when setting the cap were "contrary" to instructions set forth by the Durbin Amendment.

Linney's also argued that the regulation setting the cap was "arbitrary and capricious." For one thing, the restaurant argued, the Fed failed to consider the similarities between debit card and checking account transactions, as required by the Durbin Amendment. The Fed also relied on "hypothetical costs" in setting the cap rather than considering issuer- and transaction-specific costs, the restaurant's lawyers argued.

Linney's also challenged the Fed's decision to "implement a one-size-fits-all approach for interchange fees."

Judge Van Tatenhove balked at this suggestion, however, writing in a decision handed down on Sept. 12, 2025, that setting transaction-specific fees "is nigh impossible to accomplish." What's more, the judge added, "were such a feat possible, it would be further stymied by the gargantuan volume of daily transactions" processed.

Judge Van Tatenhove similarly put to rest Linney's other arguments in dismissing the restaurant's challenge to the Fed the rule set that implements the Durbin Amendment. "Fundamentally, what Linney's Pizza fails to recognize is that the [Fed] must balance competing considerations," the justice wrote.

North Dakota decision awaiting appeal

Justice Van Tatenhove, in rendering his decision, relied on an entirely different reading of the Durbin Amendment instructions to the Fed than did Justice Daniel M. Traynor of the U.S. District Court for the District of North Dakota.

Justice Traynor ruled that the Fed misunderstood instructions set forth in the Durbin Amendment, siding with Corner Post a truck stop and convenience store based in Watford City, N.D., that had challenged the Fed's cap-setting regulation. He also wrote that while Congress gives agencies "discretionary authority" for carrying out laws, they do not enjoy carte blanche authority.

"This is not to say the [Fed] Board has zero discretion in regulating interchange fees, but Congress certainly did not hand the Board a blank check of discretion," Justice Traynor asserted.

Also at odds with Justice Van Tatenhove, Justice Treynor ruled that the Fed included costs that were not set forth in the Durbin Amendment when calculating the debit interchange cap.

"The Durbin Amendment was enacted to rein-in big banks' ballooning interchange fees, so Congress was naturally cautious in detailing what 'shall' and 'shall not' be included when regulating said fees," Justice Traynor wrote. "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."

Justice Treynor's ruling was put on hold, however, to provide the Fed an opportunity to appeal. In October 2023, the Fed proposed slashing the cap on debit card interchange by more than 30 percent, beginning this year, but that proposal has remained in limbo, with at least one member of the Fed Board of Governors, Michelle Bowman, taking the unusual step of issuing a statement of opposition to the proposal.

In June of this year, Bowman became vice chairman of the Board of Governors, with responsibilities for overseeing bank supervision.

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