Regulation II, titled Debit Card Interchange Fees and Routing, is a rule of the Federal Reserve Board that limits the interchange fee a large issuer may receive on a debit card transaction in the United States. It also bars arrangements that would force a merchant to send a debit transaction over a single network. The rule is found at 12 CFR Part 235 and took effect on 1 October 2011.
The regulation implements the Durbin Amendment, a provision of the Dodd-Frank Act of 2010 that added a new section on debit interchange to the Electronic Fund Transfer Act. It applies to debit and certain prepaid cards only. Credit card interchange is outside its scope, which is one reason the economics of debit and credit programs in the United States differ so sharply.
The interchange fee standard
Congress directed the Board to ensure that the fee an issuer receives is reasonable and proportional to the cost the issuer incurs for the transaction. The Board translated this into a cap with two parts: a base component of 21 cents and an ad valorem component of 5 basis points, or 0.05 percent, of the transaction value. An issuer that meets the Board's fraud-prevention standards may add 1 cent.
The cap can be written as:
For a purchase of $50, the ad valorem part is 2.5 cents, so the most a covered issuer may receive is 24.5 cents including the fraud-prevention adjustment. Before the rule, the average debit interchange fee was roughly twice that level, and fees on larger purchases were much higher because they were set as a percentage.
Who is covered and who is exempt
The fee cap applies to issuers that, together with their affiliates, have assets of $10 billion or more. These are usually called covered or regulated issuers. Smaller banks and credit unions are exempt from the cap and continue to receive the higher rates set by the card networks for exempt issuers.
Debit cards issued under government-administered payment programs and certain reloadable general-use prepaid card products are also exempt from the cap, subject to conditions. The small-issuer exemption has shaped the fintech market. Many consumer fintech programs issue debit cards through a small sponsor bank so that the program can earn uncapped interchange, which funds free accounts and rewards.
Routing and exclusivity rules
The second half of the regulation applies to all issuers, whatever their size. An issuer may not restrict the networks over which a debit transaction can be processed to fewer than two unaffiliated networks. In practice a card carries one of the global brands for signature-style transactions and at least one unaffiliated debit network. Issuers and networks may not prevent a merchant, or its acquirer, from choosing among the enabled networks. This merchant choice is the basis of least-cost debit routing.
For years many cards offered two networks only for transactions made in person with a PIN. In October 2022 the Board adopted a clarification, effective 1 July 2023, stating that issuers must enable at least two unaffiliated networks for card-not-present transactions as well, which opened online debit volume to competing networks.
Effects
The rule reduced the debit interchange income of large banks by several billion dollars a year. Banks responded by cutting back debit rewards programs and, according to several studies, by raising account fees or minimum balance requirements. Merchants' card costs on regulated debit fell, although researchers disagree about how much of the saving was passed on to consumers in lower prices. Merchants with small average tickets could pay more than before, because the flat 21-cent component exceeded what they had paid under percentage-based rates.
The two-tier structure also changed competition among issuers. Exempt banks gained an advantage in debit card economics, and network pricing for exempt and covered issuers diverged.
Proposed revision and litigation
In October 2023 the Board proposed lowering the cap to a base of 14.4 cents plus 4 basis points, with a fraud-prevention adjustment of 1.3 cents, and updating the figures every two years from issuer cost surveys. The proposal attracted opposition from banks and support from retailers, and it has not been finalized.
Merchants have also challenged the original rule in court, arguing that the Board included costs in the cap that the statute does not allow. In Corner Post v. Board of Governors, decided in 2024, the Supreme Court held that a business could bring such a challenge within six years of first being harmed by a rule, even if the rule itself was older. In August 2025 a federal district court in North Dakota ruled that the fee standard exceeded the Board's authority and ordered it set aside, but it put that order on hold pending appeal, leaving the existing cap in force in the meantime. A federal court in Kentucky upheld the rule the following month. In October 2026 the appeals court for the Eighth Circuit affirmed the North Dakota ruling and sent the matter back to the Board, while an appeal in the Kentucky case was still pending. The Board had not issued a new interchange cap at the time of writing.