Price controls on bank interchange fees will harm taxpayers by driving up household costs, reducing financial inclusion, and atrophying innovation, we wrote on June 5 in a brief submitted to the U.S. Court of Appeals for the Sixth Circuit in Linney’s Pizza v. Board of Governors of the Federal Reserve System. Our brief traces the history of interchange fees, quoting studies and economic evidence about the dangers of disrupting a system that mostly works well for all.
The case involves opponents of a Federal Reserve regulation, Regulation II, that permits banks to charge interchange fees on credit card transactions. Interchange fees pay for a remarkably innovative and mostly seamless private system for clearing financial transactions between customers swiping credit cards and retailers who can operate without the inefficiencies of keeping credit ledgers or collecting from defaulted customers. The opponents want the courts to order the Federal Reserve to cap interchange fees at a lower level.
This would be short-sighted, harming many of the people that the price cap is intended to help. When the Durbin Amendment banning interchange on debit cards became law, free checking accounts were displaced by checking accounts with monthly fees and higher monthly minimum balances. As we write:
Lowering interchange fees will not make costs disappear, but will instead reallocate them, and such cross-subsidies (and how they change who participates and how much they use the system) are a very real and important part of any regulatory action in this area. A reduced interchange fee may well accrue to the merchant, not to the customer, or even to no one at all.[...] In short, the costs for these incremental transactions are real, and if the balloon is squeezed in one place they can show up somewhere else. The Board properly included that reality as an important consideration, and this Court should too.
Had the price caps sought by Appellant existed in the past, innovative operational and security protocols would not have developed as quickly or pervasively, or perhaps not at all. Most government payment networks depend heavily on this private sector innovation. Future developments that could save taxpayers money, such as chip technology and advanced anti-fraud efforts, cannot be developed by the private sector in a more restrictive price-control environment.
A federal judge ruled against the challengers seeking lower price caps in September 2025, and this is the appeal from that decision. Another case, Corner Post v. Board of Governors of the Federal Reserve System, confronts similar issues in the U.S. Court of Appeals for the Eighth Circuit.
Linney’s Pizza v. Board of Governors of the Federal Reserve System will be argued on October 22.