By John Kruzel and Andrew Chung

WASHINGTON (Reuters) – The U.S. Supreme Court on Tuesday was set to hear a bid to revive a lawsuit aimed at invalidating a contentious debit card “swipe fee” rule in a case with the broad potential to make federal regulations more vulnerable to legal challenges.

A convenience store called Corner Post in Watford City, North Dakota is asking the justices to restore its lawsuit – thrown out by lower courts – targeting a 2011 U.S. Federal Reserve regulation governing how much businesses pay to banks when customers use debit cards to make purchases.

These swipe, or interchange, fees reimburse banks for costs involved in offering debit cards. The fees are determined by Visa, MasterCard and other card networks, with a cap of 21 cents per transaction set under the Fed’s rule.

At issue in the case is whether Corner Post was too late when it brought a legal challenge in 2021 to the Fed’s regulation. Corner Post has argued that it should not be bound by the six-year statute of limitations that generally applies to such lawsuits because it opened for business in 2018, after that deadline had passed.

Corner Post, backed by various conservative and corporate interest groups including billionaire Charles Koch’s network and the U.S. Chamber of Commerce, contends that businesses should have wide latitude to challenge regulations they consider unlawful and burdensome. The company argues that the six-year time limit should not start running until a business is adversely affected – which for Corner Post would be March 2018 when it accepted its first debit-card payment.

President Joe Biden’s administration, representing the Federal Reserve Board of Governors, has argued that adopting Corner Post’s legal position “would substantially expand the class of potential challengers” to government regulations and threatens to “increase the burdens on agencies and courts.”

A group of small business associations filed a court brief urging the justices to maintain a strict statute of limitations that begins tolling at the time a regulation is finalized. They said that allowing lawsuits beyond this deadline “would create chaos, uncertainty and inconsistent regulatory regimes for the nation’s regulated industries and the American people the regulations seek to serve.”

Banks and merchants had long wrestled over the swipe fees. Before Congress intervened, retailers paid as much as 44 cents per transaction, which they said made it hard for small businesses to accept debit cards.

In 2010, the U.S. Congress directed the Fed to cap the fees in a bid to reduce prices for consumers. The fee cap was included in the Dodd-Frank Wall Street reform law in a provision called Durbin amendment, after its chief supporter, Democratic Senator Richard Durbin.

After the law passed, the Fed capped fees at 21 cents per transaction. The move prompted litigation by retailers who expected a much lower cap and criticized the Fed’s interpretation of Dodd-Frank. But the Supreme Court in 2015 declined to hear that challenge, leaving intact a lower court’s 2014 ruling that the Fed’s regulation was appropriate.

In 2021, Corner Post sued the Federal Reserve in a North Dakota federal court, arguing that the rule defied congressional intent and was “arbitrary and capricious” under a federal law called the Administrative Procedure Act.

U.S. District Judge Daniel Traynor in 2022 dismissed Corner Post’s lawsuit, finding that the company’s lawsuit missed the six-year statute of limitations that began running after the regulation was finalized in 2011.

On appeal, the St. Louis-based 8th U.S. Circuit Court of Appeals affirmed Traynor’s decision, prompting Corner Post’s appeal to the Supreme Court. A decision in the case is expected by the end of June.

The Fed last year proposed cutting the current cap to 14.4 cents per transaction, with the change now in the midst of a public comment period.

(Reporting by John Kruzel; Editing by Will Dunham)