What the Corner Post Ruling Really Means

Here’s how a federal court decision rendered in August will fundamentally reshape debit card economics.

This summer’s watershed Corner Post ruling that the Fed did not faithfully implement the Durbin Amendment’s debit-interchange price controls will rock the debit market. There will be losers and winners. Billions of dollars of large debit issuers’ capped interchange revenue will be eliminated. Issuers not shackled by interchange caps will take payments share. Visa and Mastercard will lose debit share but increase debit yield. And Discover’s debit networks will gain share.

The Durbin Amendment is bad policy, but it is the law. The Fed’s October 2011 implementation of the amendment, flouting Congress’s intent, was ultra vires (“beyond the law”). U.S. District Court for North Dakota Judge Daniel Traynor’s Aug. 6 Corner Post decision affirmed the rule of law, not the rule of absolutist regulators, however enlightened and well-intentioned.

The decision will also realize most of what Senator Richard Durbin with his eponymous amendment hoped to accomplish a decade and half ago. And it will eviscerate the debit economics of issuers with more than $10 billion in assets.

What matters, however, isn’t what Illinois’s senior senator hoped or says the law means. Congress’s intent as expressed in the legislation’s text is dispositive. It instructed the Fed to set a debit-interchange cap(s) permitting issuers to recover reasonable and proportional incremental authorization, clearing, and settlement (ACS) processing and documented fraud-prevention costs. It was never the Fed’s prerogative to fix or mitigate a destructive law.

The central bank took enormous and unlawful license implementing the price cap by including fixed and transaction-monitoring costs and fraud losses in its debit-interchange fee standard.

Revenue Will Plummet

The largest debit issuers’ marginal ACS processing costs aren’t more than a cent. While small covered debit issuers, particularly those using third-party processors, have higher variable ACS costs, they’re still well under the Fed’s charitable interchange cap. In 2011, it set a uniform debit-interchange ceiling of 21 cents per transaction for ACS processing costs, 5 basis points for fraud losses, and 1.2 cents per transaction for documented fraud-prevention costs. Even small debit programs don’t have marginal ACS processing costs of 21 cents per transaction.

The Fed’s single price cap on average reduced covered dual-message and single-message debit interchange of 57% and 32%, respectively. If it had impartially and ruthlessly implemented the law, debit Goliaths’ interchange-revenue would have been slashed by more than 95%.

Retailers filed a right-minded suit contending the Fed didn’t faithfully implement the law. In 2013, Judge Richard Leon agreed, ruling the Fed had ignored “the expressed will of Congress.” The Fed appealed. In a thinly reasoned decision, the U.S. Appeals Court for D.C. overturned Leon’s ruling, asserting that under the Chevron doctrine the Fed was entitled to deference in implementing the law.

The landmark 1984 Chevron deference doctrine de facto let agencies make law. It was enormously consequential, being cited by courts over 18,000 times. No more. On June 28, 2024, in Loper Bright, the Supreme Court by a 6-3 vote reversed it. Henceforth, courts, not the administrative state, will determine what the law means.

Corner Post also held that the statute of limitations for challenging agency overreach starts when plaintiffs think they’ve been harmed, not when the law was passed. In tandem, Loper Bright and Corner Post bridle the administrative state.

Traynor in 2025, like Leon in 2013, looked to the statute’s text to determine Congress’s intent.  Like Leon, Traynor ruled decisively that the Fed took enormous and unlawful license in implementing the Durbin Amendment. In a post-Chevron-doctrine world, agencies are no longer entitled to huge deference that is, in practice, lawmaking.

Traynor ruled the Fed wasn’t permitted to include covered debit issuers’ fixed ACS, network, and transaction monitoring costs, and fraud losses, in its interchange-fee standard.

A plain reading of the statute—rather than the Fed’s tortured interpretation—says fixed costs can’t be included. Traynor held transaction-monitoring costs were already provided for by the recovery of fraud-prevention costs. And nothing in the statute allowed for recouping fraud losses. Debit issuers’ incremental network ACS processing costs, however, should be recoverable.

Momentously, Traynor ruled that setting a single interchange cap for debit transactions with vastly different variable ACS processing costs is unlawful. The Fed established one debit-interchange ceiling because that was easier and less costly. The law, however, doesn’t concern itself with the cost of effecting its draconian price controls.

The consequence of debit interchange caps set by the incremental issuer ACS costs of individual transactions or discrete groups of transactions is that regulated interchange revenue will plummet.

‘Thin Gruel’

In a post-Chevron-deference world, Corner Post is likely to be upheld. The Fed will have to establish multiple, massively reduced debit-interchange caps.  This will cause a tectonic shift in payments share and economics.

In 2021, 39% of U.S. debit purchase volume was exempt from the interchange price cap. In 2024, 57% of general-purchase payment card volume was credit. Debit purchase volume subject to de minimis interchange price caps will migrate at an accelerated rate to debit and credit programs earning market interchange fees because they can offer cardholders superior value.

In 2024, Chase, Wells Fargo, and BofA did $485 billion, $474 billion, and $466 billion in debit purchase volume, respectively. Interchange revenue of a cent or so per debit transaction is thin gruel. It won’t fund much cardholder value. Much of the retail banking giants’ debit purchase volume will migrate to credit and debit issuers offering cardholders better value for their spend.

Thousands of small banks earning market debit interchange on their own lack the resources to capitalize. However, by issuing debit cards with nonbank partners like PayPal, Block, and the neobank Chime, with the resources, brands, reach, and marketing moxie to take advantage, some of them are winning share. Corner Post’s massive reduction in capped debit interchange fees will increase their edge and accelerate their share gains.

Debit volume moving from mammoth issuers to small ones will benefit the networks. Small issuers pay rack processing and licensing network fees, whereas the giants’ fees are heavily discounted. Small issuers, moreover, rely on network brands rather than viewing them as necessary but rival.

A Huge Advantage

There’s also a bank—Capital One—with the resources, brand, reach, and marketing moxie to take more debit share because of Corner Post. Capital One this year acquired the Discover network in a $35-billion transaction.

The Fed held that if a debit transaction isn’t “routed”—meaning passed from the debit network to a third-party issuer—it isn’t subject to the Durbin Amendment’s interchange price caps or routing-choice mandate. When Capital One issues Discover debit cards, it’s operating as a three-party network. It doesn’t route transactions; therefore, it isn’t straitjacketed.

Owning its own debit networks— Discover and Pulse, which is part of Discover—Capital One reaps market interchange fees and doesn’t have to offer merchants a network competitor. That’s a huge advantage.

In 2024, with $68 billion in debit purchase volume, Capital One was America’s 12th largest debit issuer. Its largest competitors will lose billions of dollars of debit-interchange revenue. That will boost Capital One Discover debit cards’ advantage. It will vault upward in the debit card ranks at the expense of competitors fettered by interchange price controls. To compete, BofA, Chase, and Wells Fargo may have to acquire and build out their own three-party debit networks.

Maybe Congress can be persuaded to restore market pricing for all debit issuers and networks. For now, however, an already tilted debit playing field is going to become more tilted, which is what Congress stipulated. Payment volume will move to products not subject to price controls, inuring to consumers’ benefit.

—Eric Grover is principal at Intrepid Ventures