Debit as a Relationship Asset: Regulatory Developments Community Banks Should Watch

Debit card swipes, dips, taps and tokens are the most common noncash payment method in the United States. Debit serves as the primary relation touchpoint between consumers and their community bank. With more than 100.7 billion transactions processed in 2023 alone—up from 37 billion in 2009—debit represents both a core service and a critical cost management area for community banks. As regulatory and judicial activity around debit intensifies, banks need to monitor the situation on government actions that could hinder their ability to provide secure, reliable debit products.

Debit is a Strategic Relationship Channel

Every debit transaction strengthens the consumer’s feelings to their bank. The physical touch of the card—its logo, colors, and design— is a powerful connection in consumers’ daily financial lives. This is particularly meaningful for community banks, which are built on relationship banking.

Issuers under $10 billion in assets—those exempt from Regulation II’s interchange cap—account for roughly 30 percent of all debit card transactions. Yet the top 15 institutions dominate deposit market share, holding 77 percent of all U.S. deposits. This contrast underscores community banks’ outsized role in consumers’ daily financial interactions despite their overall market position. Protecting that role requires a fair regulatory environment.

A Highly Active Regulatory Environment

The regulatory environment for debit continues to be very active. In 2023, the Federal Reserve issued a proposal to reduce regulated interchange by approximately 30 percent. ICBA strongly opposed this proposal and continues to engage with the Federal Reserve to highlight the proposed rule’s flaws and potential negative impacts. Last year ICBA recommended reducing the regulatory burden in the debit interchange survey; the data collection underlying the Fed’s proposal, to only 100 data points, down from 250+ points.

The 2023 implementation of new routing requirements—enabling ecommerce transactions to be routed over PIN networks (“PINless debit”)—has increased fraud exposure. PIN entry, historically a critical authentication tool, can no longer be required by issuers for authorizing merchant network routing decisions. Predictably, fraud losses have risen sharply, with the Fed reporting losses of $17.63 per $10,000 in debit transactions in 2023, more than double the rate reported in 2009, and only six months of weaker authorization protection. The Federal Reserve’s 2024 Risk Officer Survey further confirms that debit remains the number one fraud concern across financial institutions.

Judicial Uncertainty

Two federal district court cases—Corner Post, Inc. v. Board of Governors of the Federal Reserve System¹ and Linney’s Pizza, LLC v. Board of Governors of the Federal Reserve System² — have created significant legal uncertainty regarding the foundations of Regulation II. Both cases have addressed similar questions about the legality of the Federal Reserve’s Regulation II, but federal district courts in North Dakota and Kentucky have issued conflicting decisions. In Corner Post, a federal judge in North Dakota vacated Regulation II (a ruling that will not take immediate effect, pending appeal) finding the 2011 rule exceeded the Federal Reserve’s authority. In contrast, in Linney’s Pizza, a federal judge in Kentucky upheld Regulation II, finding that the Board’s regulation is neither contrary to law nor arbitrary and capricious. Because both cases are now pending appeal, the industry faces prolonged uncertainty about the future of Regulation II. ICBA continues to emphasize that the Federal Reserve should halt rulemaking until the courts resolve these challenges.

ICBA Provides Useful Resources to Guide Customer Conversations

Ultimately, these developments center on interchange, which is just one component of the overall swipe fees merchants pay in card acceptance. As small business customers increasingly ask questions about payment acceptance costs, banks must clearly and confidently communicate how debit works. ICBA provides resources to support these conversations, including the recently released Interchange Guide, which is free to all ICBA member banks. ICBA also continues to advocate across legislative, regulatory, and judicial fronts to safeguard the economic and operational viability of debit issuing for community banks.

1 Corner Post, Inc. v. Bd. of Governors of Fed. Rsrv. Sys., 794 F. Supp. 3d 610 (D.N.D. 2025), appeal docketed, No. 25-3000 (8th Cir. Oct. 8, 2025).  

2 Linney's Pizza, LLC v. Bd. of Governors of Fed. Rsrv. Sys., 804 F. Supp. 3d 717 (E.D. Ky. 2025), appeal docketed, No. 25-6038 (6th Cir. Nov.13, 2025).