(Reuters) -A U.S. judge has vacated the Federal Reserve's "swipe fees" regulation that capped the amount banks charge merchants for processing debit transactions, in a ruling favoring retailers that have long complained about paying inflated amounts.

The court ruling, issued by a federal judge in North Dakota, will not take immediate effect, giving the Federal Reserve a chance to appeal the ruling.

An appeal to the St. Louis-based 8th U.S. Circuit Court of Appeals could take months or more to resolve. Once the appeals court rules, either side will likely ask the U.S. Supreme Court to take up the case.

A spokesperson for the Federal Reserve declined to comment on the judge's ruling. Lawyers for the plaintiff, a convenience store called Corner Post, did not immediately respond to a request for comment.

Retailers and banks have long quarreled over swipe fees, with merchants claiming they are losing revenue when forced to absorb the charges, and banks saying the cap doesn't account for many costs that debit-card issuers incur to enable transactions.

A 2023 proposal by the Federal Reserve to cut the current debit fee cap from 21 cents per transaction to 14.4 cents is pending at the board. The amount of the fee was unregulated until the Federal Reserve in 2011 set the 21-cent cap.

The regulation at the center of the lawsuit requires banks to set swipe fees at a "reasonable and proportional" level.

FEE STANDARD

Corner Post alleged the Federal Reserve improperly "set a one-size-fits-all cap when Congress commanded the Board to set an issuer-specific and transaction-specific fee standard."

The Federal Reserve has defended its rule, saying it was adopted in full compliance with congressional requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

In his decision, U.S. District Judge Daniel Traynor said the Federal Reserve had acted outside the scope of its authority in issuing the swipe-fee measure, known as Regulation II.

Traynor said the fee standard improperly included certain cost categories.

This is the second time Traynor has ruled in Corner Post's case.

Traynor in 2022 dismissed the lawsuit, ruling it was filed outside of a six-year statute of limitations governing such cases.

The U.S. Supreme Court in a 6-3 ruling last year reinstated the lawsuit. Court observers viewed the decision as a major boon to the power of businesses to sue over older federal rules.

Banking advocates Bank Policy Institute and The Clearing House Association in the litigation filed a "friend of the court" brief supporting the Federal Reserve. The Retail Litigation Center and National Federation of Independent Business Small Business Legal Center backed Corner Post.