Regulation II caps the interchange fee a covered debit-card issuer can collect on a single electronic debit transaction at 21 cents plus 0.05% of the transaction's value, under a rule the Federal Reserve Board has enforced since October 1, 2011. The cap applies only to issuers with $10 billion or more in combined affiliate assets, leaving most community banks and credit unions outside it.
Interchange is the fee a merchant's bank pays the cardholder's bank on each transaction. For debit cards, Congress ordered the Federal Reserve to set that fee at a level tied to issuer costs through the Durbin Amendment, and the Board wrote the resulting formula, exemptions, and fraud-prevention terms into Regulation II, codified at 12 CFR Part 235.
What exactly does the fee cap limit?
The cap in 12 CFR 235.3 sets the maximum interchange fee a covered issuer may receive on a debit transaction at 21 cents plus 5 basis points (0.05%) of the transaction's dollar value. On a $40 purchase, for example, the value component adds 2 cents to the 21-cent base, before any fraud-prevention adjustment. The cap governs what an issuer can collect — it does not set what a merchant's processor charges on top of that, and it does not apply to credit cards.
Which issuers are covered, and which are exempt?
Regulation II's fee cap binds only debit-card issuers whose organization, together with its affiliates, held $10 billion or more in assets as of the preceding calendar year-end, per 12 CFR 235.5(a). Issuers under that threshold — the large majority of U.S. banks and credit unions by count — are exempt from the interchange limitation entirely, though the Federal Reserve's own 2024 data shows their average fees still run higher in practice than covered issuers' capped fees.
How does the fraud-prevention adjustment work?
Section 235.4 of Regulation II lets a covered issuer add up to one cent per transaction on top of the base cap if it meets the Board's fraud-prevention standards, which require the issuer to develop policies reasonably designed to identify and reduce debit-card fraud, including through fraud-related data collection and reporting to the issuer's payment card networks. The one-cent figure is a ceiling, not a guarantee — an issuer that fails to meet the standards collects no adjustment at all.
| Fee Component | Amount | Applies To |
|---|---|---|
| Base cap | 21 cents | Covered issuers, all transactions |
| Value-based add-on | 0.05% of transaction value | Covered issuers, all transactions |
| Fraud-prevention adjustment | Up to 1 cent | Covered issuers meeting fraud-prevention standards |
| Exemption threshold | Under $10 billion in combined assets | Issuer excluded from the cap entirely |
What do debit interchange fees actually run in practice?
The Federal Reserve's most recent published data, covering 2024 transactions and last updated December 19, 2025, puts the average interchange fee across all debit networks at 34 cents per transaction, or 0.73% of transaction value. That blended figure splits by network type: dual-message networks (the signature-based rails run by the major card networks) averaged 37 cents per transaction, while single-message, PIN-based networks averaged 25 cents.
The same data set shows the cap doing its job on paper: transactions from covered issuers averaged 23 cents, while exempt transactions — those from smaller issuers and government-benefit cards not subject to the cap — averaged 51 cents, more than double. The gap illustrates why the size threshold, not the formula alone, does most of the work in separating who pays what.
Why does the fee cap exist as a two-part formula instead of a flat number?
The Federal Reserve's rule pairs a flat cents-based floor with a percentage-of-value component so the fee scales somewhat with transaction size rather than charging the same 21 cents on a $2 coffee and a $2,000 appliance. Regulation II's text frames the standard as requiring fees to be "reasonable and proportional to the cost incurred by the issuer," the statutory language the Durbin Amendment used when it directed the Board to write the rule in the first place.
That framing matters operationally: a merchant selling higher-ticket goods does not automatically pay a proportionally higher debit interchange fee the way it would under a pure percentage model, because the 21-cent base still dominates the calculation on most retail-sized transactions.
Does Regulation II do anything besides cap the fee?
Yes. Beyond the interchange-fee cap in Section 235.3, Regulation II also contains network-exclusivity and routing provisions that took effect the same date, October 1, 2011. Those provisions bar issuers and networks from restricting a debit transaction to a single network and require that at least two unaffiliated networks be available to route each transaction, so a merchant's processor has a choice of routes rather than being locked to one network by the card's issuer.
That routing requirement operates independently of the fee cap and applies regardless of issuer size — it is not limited to the $10-billion-and-above institutions covered by Section 235.3. A small, exempt issuer can charge interchange fees above the capped level, but it still cannot restrict routing to a single network under the same regulation.
Frequently Asked Questions
- Does Regulation II cap credit-card interchange too? No. The rule's interchange-fee cap applies only to debit-card transactions under 12 CFR 235.3; credit-card interchange is set by the card networks and is not subject to this cap.
- Who enforces Regulation II at different banks? Enforcement splits by charter type: the Federal Reserve Board oversees state member banks, the OCC covers national banks, the FDIC handles state nonmember banks, and the NCUA oversees credit unions.
- Can an issuer under the $10 billion threshold still choose to charge less? Yes. The exemption removes the legal ceiling for smaller issuers, but nothing in Regulation II stops an exempt issuer from setting its own interchange fee below what a covered issuer could charge.
- When did the fee cap take effect? Per 12 CFR 235.10, Regulation II became effective and compliance was mandatory on October 1, 2011, with network-exclusivity provisions effective the same date and issuer compliance required by April 1, 2012.
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