The case was filed by the National Retail Federation, the Food Marketing Institute and NACS, formerly the National Association of Convenience Stores. Oil Miller Co., a residential heating and air company based in Norfolk, Va., and Boscov's Department Store LLC, based in Reading, Penn., also joined the complaint.
Dodd-Frank, the regulatory overhaul enacted in July 2010, required the Fed to ensure that fees charged for debit-card purchases were "reasonable and proportional" to the cost of processing transactions.
The 21-cent cap approved by the central bank was a pullback from a 12-cent limit it earlier proposed.
While retail and merchant groups lobbied successfully to defend the cut in swipe fees, a competing banking-industry campaign to delay the rules failed.
Durbin filed a brief supporting the retailers' suit that asked Leon to order the rule revised.
In their complaint, the retailers alleged the Fed didn't determine the incremental costs associated with a debit transaction and instead "invented" a category of costs not mentioned in the statute, giving the central bank unfettered discretion in setting the cap.
Leon said he had "no difficulty" concluding Congress intended "to bifurcate the entire universe of costs associated with interchange fees."
The law makes clear that the incremental cost associated with authorization, clearing, and settlement of an electronic debit transaction is the only cost the board was authorized to consider in its interchange transaction fee standard, Leon said. He said he was inclined to give the Fed "months, not years" to rewrite the rule in light of his decision.
Leon also sided with the retailers' challenge to the Fed's regulation of exclusivity agreements between banks and payment networks, saying it doesn't create "competition choice" among networks.
Under the rule, a debit card may allow only one network choice for signature transactions and one network choice for PIN transactions, the groups claim.
The regulation doesn't apply to debit-card issuers with consolidated assets of less than $10 billion, certain government-administered debit cards and certain prepaid cards, according to the Fed.