A court case brought by the Corner Post truck stop near Watford City, N.D., over debit card processing fees could have national implications. (Photo by Nicole Morton/For the North Dakota Monitor)
A North Dakota federal judge says the Federal Reserve Board defied the law by allowing banks to benefit from inflated debit card transaction fees for nearly 15 years.
The fees, which apply every time someone makes a debit card purchase, are meant to compensate banks for the cost of processing the transactions.
These fees went unregulated for decades. After learning banks were making billions annually from the transaction fees, Congress in 2010 passed a law instructing the Federal Reserve Board of Governors to make sure they are “reasonable and proportional” to what debit card transactions really cost.
The Federal Reserve Board adopted a rule implementing the law in 2011.
U.S. District Court Judge Daniel Traynor in a Wednesday order concluded that the board’s rule missed the mark in two major ways: by allowing the fees to reimburse banks more than Congress wanted, and by making the fees one-size-fits-all rather than tailored to individual purchases.
If Traynor’s order stands, the rule would eventually be struck down and the Federal Reserve Board would have to adopt a new one. Traynor wrote he would hold off on repealing the rule pending any appeals.
A spokesperson for the Federal Reserve Board on Wednesday declined to comment on the case.
The decision came in a lawsuit brought against the Federal Reserve Board by Corner Post, a Watford City truck stop and convenience store that opened in 2018. Corner Post says it has paid hundreds of thousands of dollars in transaction fees to banks under the board’s rule.
The truck stop owners ultimately hope the lawsuit will bring down the cost of fees for businesses and consumers, according to court records. Attorneys representing Corner Post did not immediately respond to a request for comment.
The legal dispute centered, among other things, over what costs the transaction fees are supposed to cover. Corner Post claims the 2010 law said the fees should only cover a specific set of processing costs, while the Federal Reserve’s rule accounts for additional expenses like labor, technology infrastructure and fraud prevention. Corner Post reasoned this makes the fees more expensive than they should be.
The Federal Reserve Board argued it was following the plain language of the act.
Traynor disagreed. He wrote that the overall structure and legislative history of the statute supports Corner Post’s reading of the law, and that the Federal Reserve was relying on minor grammatical inconsistencies in the text to justify its own interpretation.
If Congress had written the statute more precisely, the matter may have never had to go to court, he added.
“When one wonders if studying grammar and English’s oddities is worthwhile, this case answers with a resounding ‘yes,’” Traynor wrote in his opinion.
The board’s rule also more or less imposes the same blanket fee on all transactions, which Traynor found ignored Congress’ directive to make the fees to be proportional to each purchase.
The Federal Reserve Board previously argued that the complicated structure of debit card transactions would make this virtually impossible to implement.
Traynor acknowledged that creating such a system would be difficult, but said the board is still obligated by law to try.
The Board of Governors’ rule allows banks to charge up to 21 cents for all debit card transactions, regardless of how much it actually costs for them to process each sale. It also permits banks to charge an additional fee of .05% per transaction to make up for losses caused by debit card fraud. The rule only applies to banks with at least $10 billion in assets.
Supreme Court case
The Corner Post case was the subject of a U.S. Supreme Court decision last year.
It was originally filed in 2021 by the North Dakota Retail Association and the North Dakota Petroleum Marketers Association. Corner Post, which belongs to both groups, later joined as a plaintiff.
Traynor in 2022 dismissed the case, finding that the plaintiffs couldn’t bring the lawsuit because the six-year statute of limitations on challenging federal rules under the Administrative Procedures Act had already expired.
The 8th Circuit Court of Appeals upheld that ruling, but the Supreme Court in 2024 ruled that the clock on the statute of limitations does not start ticking until a plaintiff is first harmed by a rule. The high court decided that Corner Post could remain a plaintiff because it didn’t open until 2018.
North Dakota Monitor reporter Mary Steurer can be reached at [email protected].
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