FRANKFORT, Ky. — A federal judge has upheld the Federal Reserve’s cap on debit-card “interchange” fees, rejecting a Frankfort restaurant’s bid to strike down the rule and potentially lower costs for merchants. In an opinion dated Sept. 12 and filed Sept. 15, U.S. District Judge Gregory F. VanTatenhove granted summary judgment to the Fed’s Board of Governors and denied Linney’s Pizza LLC’s cross-motion, closing the case.
“Fees. One of the many joys of modern life. In this case, debit card fees,” the judge wrote, before explaining that Linney’s Pizza claimed the Fed’s rule counted the wrong costs and set the cap too high.
At the center of the dispute is Regulation II, the Fed’s 2011 rule that limits what banks can collect from merchants for each debit transaction to 21 cents plus 0.05% of the purchase amount. Linney’s argued the law required a narrower calculation and even an issuer-by-issuer, transaction-by-transaction cap. The court disagreed, describing that approach as “virtually impossible” and finding the statute allows a single standard based on representative issuers and transactions.
VanTatenhove also concluded the law lets the Fed consider more than just the bare-minimum “incremental” processing costs. He pointed to the rule’s inclusion of fixed authorization/clearance/settlement expenses (like network connectivity and software), transaction-monitoring used in authorization, a small ad-valorem allowance for unrecoverable fraud losses, and network processing fees—all tied to particular transactions.
On each of those categories, the court sided with the Board’s reading. For example, it noted that no debit payment can be completed without the hardware, software and labor that support authorization, clearance and settlement—costs that are specific to every transaction even if some are “fixed.” It also emphasized that the Board excluded general corporate overhead and card-program costs.
The judge addressed how courts should review the rule after the Supreme Court scrapped Chevron deference in 2024, saying he would reach his own independent view of the statute’s meaning. Even so, he rejected Linney’s broader pitch to treat the case as a “major questions” showdown, and instead evaluated whether the Fed stayed within the statutory “guardrails.”
The court also recounted earlier litigation over Regulation II, including a 2014 D.C. Circuit decision that largely upheld the fee cap and a 2015 update clarifying why transaction-monitoring belongs in the base fee rather than only in a separate fraud-prevention “adjustment.”
In a potential cross-current, the judge noted that a North Dakota federal court in August vacated the same rule in the Corner Post case—but stayed its ruling during appeal to the Eighth Circuit. Friday’s decision means the rule remains in force here while that appeal plays out.
Why it matters: Interchange fees add up across billions of transactions, and retailers say even small changes affect prices and margins. For now, the Fed’s cap of 21 cents plus 0.05% stands, and Linney’s Pizza’s suit is dismissed in the Eastern District of Kentucky.
What’s next: The decision tees up a patchwork of ongoing fights over Regulation II, including the Corner Post appeal. But in Kentucky, Judge VanTatenhove found the Board’s approach “reasonable and proportional” to the costs of moving debit payments—keeping the current cap intact.
