If you’re surprised to see the Southwest Public Policy Institute siding with the Federal Reserve in federal court, you’re not alone. We were surprised too.
But Corner Post v. Federal Reserve Board is not a routine regulatory spat. It has the potential to reshape how debit card transactions work across the United States, affecting banks, credit unions, merchants, financial infrastructure, and ultimately millions of consumers who rely on card payments every day.
So yes, SPPI is preparing to file an amicus brief with our colleagues at the James Madison Institute in support of the Federal Reserve’s interpretation of the Durbin Amendment.
Because this one matters, and this time the Fed is right.
What the Case Is About
Congress passed the Durbin Amendment in 2010 to regulate interchange fees, the small transaction fees paid to debit card issuers to support the cost of processing debit transactions. Congress required that these fees be:
“reasonable and proportional to the cost incurred with respect to the transaction.”
To implement this law, the Federal Reserve created Regulation II in 2011. For more than a decade, it has allowed debit card issuers to recover reasonable, transaction-specific costs, including:
- authorization, clearing, and settlement costs
- fraud prevention and transaction monitoring
- network and processing infrastructure
Recently, a district court ruled that many of these costs cannot be considered at all. The court essentially concluded that the Durbin Amendment allows recovery only of a narrow set of “incremental” processing costs and prohibits recovery of fixed, transaction-specific investments necessary for the system to operate.
That’s not what the law says. Worse, it’s a dangerous precedent.
The Law Allows These Costs, and Common Sense Demands It
SPPI’s brief makes a simple point: the law allows the recovery of reasonable transaction-specific costs, and common sense requires it. Congress clearly directed regulators to include incremental transaction costs and exclude costs that are unrelated to specific transactions. In doing so, the statute necessarily recognizes a third category of costs: those that are transaction-specific but not purely incremental. These costs are not banned. Instead, Congress left them to the Federal Reserve’s “reasonable and proportional” judgment, which is precisely what Regulation II has applied for more than a decade. During that time, the system has functioned, markets have adapted, and investment has continued. The district court’s reinterpretation does not reflect textual fidelity; it effectively amputates part of the statute.
The ruling also creates a serious constitutional problem. When the government imposes price controls that prevent recovery of invested capital, it is not engaging in harmless regulation. It is the transfer of economic value from one private party to another without compensation, which violates the Fifth Amendment. If allowed to stand, the decision would force issuers to operate parts of their payment infrastructure at a loss, discourage investment in fraud prevention and security, weaken network stability, and undermine innovation. Artificial price controls do not expand access. They ration it. This case risks doing that on a national scale.
The implications extend far beyond one courtroom. Debit cards are not a boutique financial product; they are part of the fundamental plumbing of the American economy. If courts begin prohibiting recovery of legitimate, transaction-specific costs, financial institutions will scale back investment, fraud defenses will erode, system resilience will suffer, and the costs will simply resurface elsewhere in the system. Consumers will not be insulated from these consequences. History shows that promised “merchant savings” rarely reach them, while losses and reduced service quality almost always do. We have seen this story before: price controls lead to shrinking service, fewer options, and worse outcomes.
This is not about protecting institutions. It is about preserving access. SPPI is filing this brief because poor statutory interpretation produces poor economics, and poor economics ultimately hurts ordinary Americans who cannot absorb systemic shocks as easily as large corporations. Durable affordability depends on competitive markets, transparent pricing, investment incentives, and stable regulatory frameworks, not court-imposed price ceilings detached from operational reality.
The Bottom Line
This case is far larger than a dispute over fees. It is about whether courts will acknowledge that payment infrastructure requires continual investment, and whether policymakers will allow recovery of the costs necessary to sustain that investment. It is about whether policy respects economic reality rather than attempts to override it. Most importantly, it is about whether the financial systems Americans rely on every day remain strong, secure, and accessible. On that principle, SPPI is prepared to stand firm, even if it means standing with the Federal Reserve.