Federal Advocacy Update

A North Dakota ruling cuts fees for big retailers but could raise costs for credit union members.

By Dakota Advocacy Team
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A U.S. District Court judge in North Dakota recently ruled in Corner Post v. Board of Governors of the Federal Reserve System that the Federal Reserve exceeded its authority in the 2011 debit interchange rule by including fraud-loss adjustments and other fixed costs in the fee calculation. This decision delivers a clear win for large retailers, who now reap the benefit of reduced interchange rates while bearing no statutory responsibility to safeguard consumer payment data.

Despite this setback, credit unions must continue to comply with Regulation II’s existing cap until the Fed’s appeal before the Eighth Circuit is resolved. Meanwhile, a pending Fed proposal to further lower the cap could be implemented even if the current case is not settled in court.

Why This Ruling Hits Dakota Credit Unions and Their Members Hard
Retailers Shift Costs and Avoid Liability
Retailers have long sought to push payment processing costs onto financial institutions. This ruling facilitates that shift, allowing retailers to benefit from low interchange fees without investing in fraud-prevention systems. Credit unions, especially those serving smaller communities in North and South Dakota, remain fully on the hook for fraud management, cybersecurity, and merchant-issuer settlement infrastructure.

Reduced Revenue Means Harder Choices for Consumers
Interchange income helps keep many services free or low-cost. When this revenue stream shrinks, credit unions may need to introduce new fees or cut existing member benefits placing pressure on financial inclusion efforts, especially in lower-income, rural, and military communities. National feedback on proposed rule changes backs this concern, with hundreds of community financial institutions warning of consumer harm, particularly for low- and moderate-income populations.

Erosion of Fraud Prevention Investments
If fraud-related costs are no longer recoverable through interchange, credit unions may scale back essential investments in fraud detection, secure payment infrastructure, and related technologies. Industry associations highlight that current interchange fees underwrite consumer protection efforts and without them, those protections may be compromised.

Legal Precedent to Challenge Regulation
The court’s reasoning leaned on the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo, which dismantled the doctrine of agency deference. This erasure of automatic deference to federal agency interpretations paves the way for further legal challenges to financial regulations heightening uncertainty for credit unions and consumers alike.

Impact on Local Communities
For credit unions in the Dakotas, chances are this won’t spell immediate closures or drastic changes, but the long-term effects could erode the sustainability of membership services. Without interchange revenue to fund fraud safeguards and innovative services, member trust and access to affordable banking may suffer. As retailers enjoy cost savings, credit union members may pick up the tab through a combination of narrower services and higher operational costs.

What Comes Next

• Appeals Path: The Eighth Circuit decision and potentially the Supreme Court will determine whether fraud costs can remain part of interchange calculations.
• Watch for Rule Changes: The Fed’s proposed adjustments to Regulation II could further cut debit interchange income, even as fraud rates continue to climb.
• Advocacy Matters: Dakota credit unions should amplify their voice highlighting how interchange income supports local access, member services, and fraud prevention in rural and vulnerable areas.

Credit Unions Push Back Against “Big Box Bill” in Defense Authorization Debate
Dakota credit unions are joining a nationwide effort to block attempts to attach the Credit Card Competition Act (CCCA) or related interchange provisions to the Fiscal Year 2026 National Defense Authorization Act (NDAA). This annual defense policy bill has become a recurring target for last-minute amendments, and industry leaders are sounding the alarm that such changes could harm consumers, disrupt payment systems, and reduce resources for local financial institutions.

America’s Credit Unions recently sent a letter to Senate leaders underscoring that any effort to add CCCA provisions or commission a Department of Defense (DoD) study on interchange fees would have negative consequences for credit-issuing credit unions. Extending new routing requirements to credit cards similar to those imposed on debit transactions—would significantly disrupt the operations and risk management practices of community-based institutions.

Industry leaders emphasized that the CCCA is not about promoting true market competition. Instead, it serves the financial interests of large national retailers, creating government intervention in the credit card system and effectively imposing backdoor price controls. This would shift billions in revenue away from financial institutions and into the pockets of “big box” merchants, while leaving credit unions responsible for fraud prevention, dispute resolution, and the infrastructure that keeps card payments safe.

Concerns were also raised over a proposed amendment by Senators Roger Marshall (R-Kan.) and Dick Durbin (D-Ill.) directing the DoD to study interchange fees. While presented as a neutral review, credit union advocates view the proposal as a “Trojan horse” designed to advance CCCA provisions through a must-pass bill. Such studies, they warn, could be leveraged to justify further legislative intrusion into payment systems without fully considering the operational and consumer-protection impacts.

In a separate communication, America’s Credit Unions reached out to South Dakota Senator Mike Rounds (R-SD), as well as Senators Steve Daines (R-Mont.), Mark Warner (D-Va.), and Tina Smith (D-Minn.) to express strong support for their broader package of Community Development Financial Institution (CDFI) reforms, which includes the CDFI Fund Transparency Act, the CDFI Bond Guarantee Act, and the Scaling Community Lenders Act. The association reiterated its commitment to advancing these initiatives through proper legislative channels, rather than linking them to controversial interchange debates in the NDAA process.
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For Dakota credit unions, the issue is more than a policy fight in Washington, it’s a matter of protecting the ability to offer affordable credit, maintain strong fraud protections, and continue investing in local communities. Any measure that strips away interchange income without addressing retailer responsibility for fraud or payment security would ultimately shift costs to members, especially in rural and underserved areas.

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Reach out with any questions or for more details to Jeff Olson or John Alexander.​