A Kentucky Pizzeria Is Fighting the Fed Over the Debit Fees You Pay Every Day

Every time a customer taps a debit card at your register, a few cents disappear before the money ever reaches your bank account. Multiply that across thousands of transactions a year, and it adds up to one of the most persistent, least-discussed costs of running a small business. Now a single pizza shop in Frankfort, Kentucky is trying to change how those cents get calculated for every merchant in the country — and the case is headed for a courtroom this fall.

Linney's Pizza, Inc. v. Board of Governors of the Federal Reserve System is scheduled to be heard by the U.S. Court of Appeals for the Sixth Circuit, and legal analysts tracking the case believe it's on a path that could eventually reach the Supreme Court.

The Fee Nobody Explains to New Business Owners

When you open a merchant account to accept cards, part of what you pay is called an interchange fee — money that goes to the bank that issued your customer's card. For debit cards, that fee is capped under a Federal Reserve rule known as Regulation II, which implements a 2010 law called the Durbin Amendment. Today, for the largest card issuers (those with $10 billion or more in assets), the cap sits at 21 cents plus 0.05% of the transaction, with an additional fraction of a cent allowed for fraud prevention costs. That cap was supposed to keep debit fees "reasonable and proportional" to what it actually costs a bank to process a transaction. Linney's Pizza argues the Federal Reserve broke that promise by letting banks build a "third category" of costs into the calculation — costs the restaurant's lawyers say go beyond the plain text of the Durbin Amendment and inflate what small merchants pay on every single debit sale.

How a Small Restaurant Ended up Suing the Federal Reserve

The Durbin Amendment was written specifically to protect small merchants and consumers from excessive card fees. But in September 2025, a federal district court sided with the Fed, ruling that Regulation II's "third category" of costs was a permissible way to calculate whether a fee is reasonable. Linney's Pizza, backed by merchant trade associations, appealed. The case has since drawn attention from Capitol Hill: Senator Dick Durbin, the amendment's namesake, filed an amicus brief with the Sixth Circuit supporting the merchants' position, while national banking and credit union associations filed their own briefs urging the court to uphold the Fed's rule as written.

Adding to the complexity, a separate but related case, Corner Post, Inc. v. Board of Governors of the Federal Reserve System, is working its way through the Eighth Circuit. Both cases raise overlapping arguments about whether the Fed's cost calculations are legally sound, and both are being watched closely as bellwethers for where debit fees are headed next.

Why This Matters Even If You've Never Heard of Regulation II

If your business accepts debit cards, this fight is about your bottom line, whether you've followed it or not. Debit and credit card fees are frequently among the top handful of operating expenses for retailers, restaurants, and service businesses, right alongside rent and labor. A ruling that struck down or narrowed the current fee structure could, in theory, lower what merchants pay per transaction. A ruling that upheld the broader cost calculation could preserve or even validate higher fees.

There's also a wrinkle worth knowing about: in August 2025, a separate federal district court actually vacated Regulation II entirely, on the theory that the Fed had exceeded its authority — but the court stayed that decision while the case is appealed, specifically to prevent debit interchange fees from becoming a completely unregulated market overnight. The Fed appealed that ruling too. In other words, there are multiple live threads right now, in multiple circuit courts, all touching the same basic question: how much should a bank be allowed to charge a business like yours every time a customer swipes or taps a debit card?

What Small Business Owners Should Do While This Plays Out

• Don't wait on a court ruling to control your processing costs. Ask your payment processor for an itemized breakdown of interchange, assessment, and markup fees — many merchants have never actually seen this broken out.
• Compare interchange-plus pricing against flat-rate processing. Interchange-plus often ends up cheaper for businesses with steady debit card volume, since you're not paying a blended markup on top of the regulated rate.
• Consider whether a small cash discount or minimum purchase policy makes sense for your business model — both are legal in most states and can meaningfully offset card fees over a year.
• Keep an eye on the Sixth Circuit's ruling, expected sometime after the fall hearing, and the parallel Eighth Circuit case. A final decision in either could change your processing costs within a single billing cycle.
• Revisit your profit and loss statement to see exactly how much of your revenue currently goes to card processing — it's often a bigger number than owners expect.

A David-and-Goliath Story With Real Financial Stakes

It's easy to read "Board of Governors of the Federal Reserve System" and assume this is a story for bankers and lawyers, not the owner of a 12-table pizzeria or a two-person landscaping company. But that's exactly backward. Linney's Pizza is a small business, run by people who understood their debit fees well enough to argue, in federal court, that the math behind them was wrong. Whatever the Sixth Circuit decides, the ruling will apply to every business in the country that takes a debit card — which, in 2026, is nearly all of them.

If you're setting up a new merchant account or reviewing your banking relationships while this case plays out, it's worth making sure your business bank account and payment processing setup are actually structured to your advantage, not just whatever your bank defaulted you into when you opened the account.

Photo by Romain Chollet on Unsplash