Corner Post v. Federal Reserve: Eighth Circuit Applies Loper Bright To Invalidate Credit Card Swipe Fee Regulations  

The Eighth Circuit’s recent decision in Corner Post, Inc. v. Board of Governors of the Federal Reserve rejecting the Fed’s request for deference to its Chevron-era regulation setting a 21-cent cap for credit card swipe fees highlights the continuing practical impact of Loper Bright’s changes to the statutory interpretation landscape. The Eighth Circuit’s ruling showcases how Loper Bright’s can play an outcome-determinative role in regulatory challenges. It also illustrates how Loper Bright operates in tandem with the Supreme Court’s decision in Corner Post v. Board of Governors opening up the courthouse doors to allow newly harmed parties like Corner Post, including those that can only be justified under the Chevron regime repudiated by Loper Bright, such as the regulation at issue in this case.  

Under Dodd-Frank, as amended, the Fed is tasked with setting standards for credit card swipe fees. The statute requires the Board to “prescribe regulations . . . to establish standards for assessing whether the amount of any interchange transaction fee . . . is reasonable and proportional to the cost incurred by the issuer with respect to the transaction.” But importantly, it both requires the agency to consider “the incremental cost incurred by an issuer for the role of the issuer in the authorization, clearance, or settlement of a particular electronic debit transaction” in setting the swipe fee and prohibits the agency from considering “other costs incurred by an issuer which are not specific to a particular electronic debit transaction[.]” In short, Dodd-Frank contains an express delegation of rulemaking authority and fixes the boundaries of the Board’s discretion to determine whether a fee is “reasonable and proportional,” including by textually requiring the Board to consider “incremental costs” and barring it from considering certain “other costs.” But it does not delegate to the Board to define statutory terms and decide for itself what the statute means.  

The Fed promulgated the swipe fee rule at issue, known as Regulation II, in 2011 under the Chevron regime, which required courts to defer to reasonable agency constructions of ambiguous statutory language.  Regulation II was subsequently challenged in litigation. In 2014, in NACS v. Board of Governors of the Federal Reserve, the D.C. Circuit upheld Regulation II by applying Chevron deference. The D.C. Circuit reasoned that the statute was ambiguous “as to the existence of a third category of costs,” thereby implicitly delegating interpretive authority to the agency and requiring the court “defer to the Board’s reasonable determination that the statute splits costs into three categories undefined” under Chevron. That is the very approach Loper Bright unequivocally rejected, explaining that “statutory ambiguity . . . is not a reliable indicator of actual delegation of discretionary authority to agencies.” 

After Loper Bright, Regulation II has not fared so well. As previously discussed, on remand the district court in Corner Post applied Loper Bright to invalidate Regulation II. The Eighth Circuit reached the same result. Writing for the panel, Judge Stras explained that “[d]eferring to an agency’s interpretation, like the Federal Reserve wants us to do here, ended with Loper Bright.” Invoking Chief Justice Marshall’s famous line from Marbury v. Madison, Judge Stras continued:  

We [i.e., Article III courts] say “what the law is.”  

The express delegation to the agency to “prescribe regulations” and “establish standards” just allows it to color within the lines of the statute. . . . In passing the Durbin Amendment, Congress could hardly have been clearer. It does not “alter[], limit[], or otherwise affect[] the deference that a court affords to . . . the [Federal Reserve] Board in making determinations regarding the meaning or interpretation of [the interchange-fee provision].” . . . Zero deference from the Administrative Procedure Act, plus zero deference under the statute we are interpreting, still adds up to nothing. 

Against this backdrop and reviewing Regulation II de novo, the Eighth Circuit found the Board’s interpretation of the statute to be wanting, reasoning it both failed to account for the statute’s emphasis on required consideration “incidental” transactional costs and also improperly considered fixed costs the agency was statutorily prohibited from considering. As to the Board’s failure to account for “incidental costs”: 

The Federal Reserve never decided what it is, opting instead for a 21-cent per-transaction cap. . . . Missing is any definition of “incremental cost.” The Federal Reserve “shall . . . consider[]” it, . . . but it appears to have been pushed to the side. In exercising our “independent judgment,” . . . we cannot skip it because it tells us whether the agency’s actions were “in accordance with law[.]” . . . After all, ignoring what it was supposed to consider and considering what it was supposed to ignore would place the agency on the wrong side of its “statutory . . . authority.” 

In addition, the panel interpreted the statutory prohibition on considering “other costs incurred by an issuer which are not specific to a particular electronic debit transaction” to refer to fixed costs—which Regulation II, contrary to that prohibition, takes into consideration: “They are the other problem with Regulation II.  During the rulemaking, the Federal Reserve admitted that some fixed costs factored into the interchange-fee cap, even though they are not ‘specific to a particular electronic debit transaction.’” The panel continued, fixing the boundaries of the Board’s discretion in setting a “proportional” swipe fee: “Make no mistake, debit-card interchange fees do not have to exactly match marginal cost.  . . . At a minimum, however, it must sort the costs into those that are transaction-specific and those that are not.  Not just pick a number and hope it is close enough for government work.” Because the credit card swipe fee was set based on analysis grounded in an impermissible interpretation of the statute, the panel affirmed the district court’s judgment and “remand[ed] for the agency to come up with a fee structure that reflects the statute Congress wrote.” 

The Board’s interpretation of the statute in Regulation II may well have passed muster under Chevron, as the D.C. Circuit found in NACS. But as Corner Post illustrates, even where a statute delegates some discretionary authority to an agency—even expressly—the agency must still “color within the lines of the statute,” which are independently set by Courts.