A Federal Court Vacated the Debit Interchange Cap a Year Ago and Nothing Has Changed at the Terminal. Here Is Where Regulation II Stands, and What a Merchant-Services Team Should Be Doing About It.

Regulation II is the rule behind the cheapest interchange on a merchant statement. Since October 2011 it has capped what a large bank may receive on a debit transaction at 21 cents plus five basis points, with a further cent for issuers that meet the Federal Reserve's fraud-prevention standards. On 6 August 2025 the United States District Court for the District of North Dakota held that the cap was set in excess of the Board's authority and vacated it. Thirteen months later, every regulated debit transaction in the country still clears at the same price.

That is not a contradiction, and the reasons are worth knowing because the three things that could change it are all now on a calendar. The Eighth Circuit heard the Board's appeal on 13 May 2026. A second court, in Kentucky, upheld the same rule on 15 September 2025, and the Sixth Circuit hears that appeal on 22 October 2026. And the Board's own proposal to lower the cap to 14.4 cents, published in November 2023, has never been finalised or withdrawn. Here is what the rule does in the terms an acquirer sees, what the two courts held, what the judgment actually vacates, and what to check in a debit portfolio before any of it moves, as of September 2026.

What Regulation II Does, in the Terms an Acquirer Sees

The Durbin Amendment told the Board to establish standards for assessing whether the amount of any interchange transaction fee is reasonable and proportional to the cost incurred by the issuer with respect to the transaction. The Board's answer, at 12 CFR 235.3(b), is a ceiling: an issuer complies only if each fee is no more than the sum of 21 cents and 5 basis points multiplied by the value of the transaction. Section 235.4 adds up to 1 cent for an issuer whose fraud-prevention policies meet the rule's standards.

The cap applies only to issuers that, together with their affiliates, had assets of $10 billion or more at the end of the preceding calendar year. Everyone smaller is exempt, as are government-administered programs and certain reloadable prepaid cards, and the Board publishes the lists networks rely on to tell the two apart; the current lists, revised 27 May 2026, reflect assets as of 31 December 2025. The gap in price is large. The Board's most recent biennial report, covering 2023, puts the average interchange fee on a covered transaction at 22 cents over dual-message networks and 24 cents over single-message, against 62 cents and 27 cents for exempt transactions; covered transactions were 61.25 percent of the 100.7 billion debit and prepaid transactions the networks processed that year. The same report carries the number the litigation turns on: the average cost to a covered issuer of authorising, clearing and settling a transaction, excluding fraud losses, was 4.1 cents in 2023.

Regulation II also contains the routing rules, at section 235.7, and they matter here because they are not what the court struck. An issuer or network may not restrict a debit transaction to fewer than two unaffiliated networks, and may not inhibit the ability of any person that accepts debit cards to direct the routing over any network that may process it. Since 1 July 2023, under a final rule the Board adopted in October 2022, that two-network requirement expressly applies to card-not-present transactions as well.

What the North Dakota Court Held

Corner Post is a truck stop that opened in 2018 and joined a challenge to Regulation II in 2021. The suit was first dismissed as time-barred, since the rule was ten years old; the Supreme Court revived it on 1 July 2024, holding that a claim under the Administrative Procedure Act accrues when the plaintiff is injured, not when the rule is issued. On 6 August 2025 Judge Daniel M. Traynor granted Corner Post summary judgment.

The reasoning follows the statute's structure. The Durbin Amendment says the Board shall consider the incremental cost incurred by an issuer for the role of the issuer in the authorization, clearance, or settlement of a particular electronic debit transaction, and shall not consider other costs incurred by an issuer which are not specific to a particular electronic debit transaction. In its December 2010 proposal the Board read that as two boxes and proposed a 12-cent cap. In the July 2011 final rule it decided the statute was ambiguous, found a third category of costs that were specific to a transaction without being incremental, and raised the cap to 21 cents to cover four of them: fixed processing costs, network processing fees, transaction-monitoring costs and fraud losses. The D.C. Circuit upheld that reading in 2014 under Chevron; Chevron was overruled in 2024, and the court concluded that the Durbin Amendment prohibits the inclusion of any cost in the interchange fee standard other than the incremental ACS cost of a transaction. It then took the four costs in turn: fixed costs are by definition not incremental; transaction-monitoring costs belong to the separate fraud-prevention adjustment Congress provided for, which issuers must earn; fraud losses are not costs at all in the court's reading but an insurance policy against after-the-fact losses; and a network fee cannot be a component of an interchange fee when the statute defines it as any fee other than an interchange transaction fee and tells the Board to ensure such fees are not used to compensate issuers.

The court added a second holding that reaches further than the arithmetic. Congress directed the Board to issue standards, plural, that are reasonable and proportional to the cost incurred by the issuer with respect to the transaction, and a single fee standard for all, even with an adjustable ad valorem component, cannot be squared with that text. The Board is correct that issuing such particularized standards will be challenging, the opinion says, but that does not make it absurd.

What the Judgment Actually Vacates, and Why Nothing Has Changed

Two features of the judgment explain the thirteen quiet months. The first is the stay. The court vacated the fee standard but stayed that vacatur pending the resolution of any appeal to the Eighth Circuit, in order, it said, to prevent interchange transaction fees from becoming a completely unregulated market. Until the Eighth Circuit rules, and for as long as any further appeal runs, the 21-cent cap binds exactly as it did in July 2025.

The second is the scope. The original judgment said the court would vacate Regulation II, the whole 2011 rule. On 3 September 2025 the Board asked the court to confine that to the portion of Regulation II that sets debit card interchange fee standards, 12 C.F.R. § 235.3(b), since Corner Post had only challenged the fee standard and it was the only part the court had found unlawful. Corner Post did not oppose, and on 27 October 2025 the court entered an amended judgment that vacates Regulation II's interchange fee standard, 12 C.F.R. 235.3(b), and nothing else. The routing rules in 235.7, the fraud-prevention adjustment in 235.4 and the small-issuer exemption in 235.5 were never at issue and are not affected by any outcome of this case. The judgment also says in terms that it does not prevent the Board's pending updates to Regulation II from taking effect.

The Board filed its opening brief in the Eighth Circuit on 30 December 2025, Corner Post answered on 13 February 2026, and the case was argued and submitted in St. Paul on 13 May 2026 before Judges Smith, Benton and Stras. As of 20 September 2026 the docket shows no decision.

Kentucky Went the Other Way

Corner Post shares counsel with a second plaintiff, Linney's Pizza, which brought the same claims in the Eastern District of Kentucky. In an opinion filed on 15 September 2025 Judge Gregory Van Tatenhove upheld Regulation II, reading the statute to permit the third category of costs and, on the issuer-and-transaction question, calling it admittedly a close call before holding that transaction-specific fees are not what was contemplated by the statutory text as made clear by practical context. The two district courts now disagree on every question that matters. Linney's Pizza appealed, and on 19 August 2026 the Sixth Circuit set oral argument for 22 October 2026. If the circuits split as their district courts did, the question is headed for the Supreme Court, and the stay in North Dakota keeps the cap in place for the duration.

The Board's Own Proposal Is Still Sitting There

Alongside the litigation is the Board's own attempt to change the number. On 25 October 2023 it proposed to update all three components of the cap from its biennial survey data: a base of 14.4 cents in place of 21, an ad valorem component of 4.0 basis points in place of 5, and a fraud-prevention adjustment of 1.3 cents in place of 1. On what the Board called an average-sized $50 transaction, the maximum would fall from 24.5 cents to 17.7. The proposal would also re-set the cap every two years from the survey, and the Board said it would not intend to seek public comment on those future updates. The comment period was extended once, to 12 May 2024, and closed. A search of the Federal Register on 20 September 2026 shows no final rule, no withdrawal, and no further rulemaking document on the subject since the extension notice of January 2024.

The North Dakota opinion does not make that proposal easier to finish. The Board wrote that it does not propose any changes to the costs considered, so the proposed base component still recovers the same third category, and it still sets one cap for every covered issuer; both are things the court held the statute forbids. Whether the Board proceeds, and on what basis, is a decision it has not announced.

What It Means for a Merchant Portfolio

For the next several months, nothing. The price of regulated debit is fixed by a rule under a stay, and no merchant's statement will move because of a court until the stay lifts. What a merchant-services team can do now is understand which direction each outcome pushes. If the Eighth Circuit affirms, the stay by its own terms lasts only until that appeal is resolved, and unless a court extends it for further review the district court's own words describe the result: an unregulated market for interchange on covered debit, with the statute's reasonable-and-proportional command still on the books but no Board standard to give it a number. Networks set debit interchange, and exempt-issuer rates are the nearest evidence of where they set it when no cap applies. If the Board's rule survives, the only route to a lower number is the Board's unfinished proposal, which would cut the cap by more than a quarter on a typical transaction.

How any of that reaches a merchant depends entirely on the pricing model. An interchange-plus merchant is billed the actual interchange and sees a change the month it happens, up or down. A merchant on tiered or flat-rate pricing pays a rate that already assumes a blend of regulated and exempt debit, and a change to the cap moves the acquirer's margin instead, until someone reprices. That is the conversation to have before the courts rule, not after.

What to Put in Place

• Know the regulated share of each merchant's debit volume. It comes from the issuer's status, not the merchant's, and the Board's exempt and not-exempt lists, revised 27 May 2026, are the reference the networks use. Most processors flag it at the BIN level; if yours does not, ask, because it is the number every scenario above is measured against.
• Read every pricing schedule for what happens to regulated debit if the cap changes. Interchange-plus passes it through by construction. For tiered and flat-rate contracts, decide now whether a change in the cap triggers a repricing right, a pass-through or nothing, and make sure the merchant agreement says the same thing your sales team does.
• Do not sell on a debit-savings story that depends on any of this. The cap is unchanged as of September 2026, the two courts that have ruled disagree, and the Board's proposal has been open for nearly three years. A merchant told to expect cheaper debit will hold you to it.
• Treat routing as settled, because it is. The two-unaffiliated-networks requirement and the merchant's right to direct routing were not challenged and are not part of the judgment, and the card-not-present rule has been in force since 1 July 2023. A merchant with a material debit mix and a gateway that cannot route PIN-less debit to the cheaper network is leaving money on the table that no court is going to give back. The same goes for the fraud-prevention cent in 235.4: it was not vacated and stays in the interchange tables.
• Put the dates in the calendar: the Sixth Circuit argument on 22 October 2026, and the Eighth Circuit opinion whenever it issues. The stay runs only until the Eighth Circuit appeal is resolved, so an affirmance is the switch; watch for whether a court extends the stay while further review is sought.

The One-Line Version

A federal court has held that the 21-cent debit interchange cap was built from costs Congress told the Board to leave out, and that one cap for every issuer is not what the statute asked for; but it stayed its own order, narrowed it to the fee standard alone, a second court disagreed with all of it, both are on appeal, and the Board's proposal to cut the cap has not moved since 2024. Regulated debit costs what it did last year. The work now is knowing how much of your portfolio is regulated, and what your contracts say when that number changes.