Regulation II caps what a bank can collect on a signature or PIN debit swipe: no more than 21 cents plus 0.05 percent of the transaction's value, with an optional 1-cent add-on for fraud prevention, and the cap binds only issuers holding $10 billion or more in consolidated assets. The rule has set those numbers since October 1, 2011, and the Federal Reserve's current regulatory text still lists the same figures.
What Exactly Does the Cap Limit?
The interchange fee is the per-transaction payment a merchant's bank sends to the cardholder's bank whenever a shopper pays with a debit card. Regulation II, the Federal Reserve's rule implementing Section 920 of the Electronic Fund Transfer Act, restricts that fee for covered issuers to the sum of two pieces: a flat 21-cent base component and an ad valorem component equal to 5 basis points of the transaction's dollar value. An issuer with compliant fraud-prevention policies and procedures may add up to 1 cent more per transaction. The Federal Reserve's own summary of the rule states it "establishes standards for assessing whether a debit card interchange fee received by a debit card issuer for an electronic debit transaction is reasonable and proportional to the costs incurred by the issuer."
The regulation also carries a routing requirement that is separate from the fee cap. It bars issuers and networks from limiting a debit card to fewer than two unaffiliated networks and from blocking a merchant's choice of which enabled network processes a transaction. That routing rule applies regardless of an issuer's size; the asset-based exemption below applies only to the fee cap itself.
How Does an Issuer Qualify for the Fraud-Prevention Add-On?
The extra 1 cent is not automatic. An issuer collects it only if it develops and implements policies and procedures reasonably designed to meet the fraud-prevention standards written into the rule, and it must notify the payment card networks of its eligibility. The add-on sits on top of the 21-cent base and the 5-basis-point ad valorem component, so a covered issuer's maximum possible fee on any single transaction is the base plus the ad valorem amount plus that penny — never more.
Which Card Issuers Have to Follow the Cap?
The cap applies only to an issuer that, together with its affiliates, held $10 billion or more in consolidated assets as of the end of the prior calendar year. Everyone below that threshold is exempt from the fee limit outright. The Federal Reserve also exempts government-administered payment programs and certain reloadable general-use prepaid cards regardless of issuer size. Because the exemption is asset-based rather than product-based, a debit card from a large regional or national bank is capped while a functionally identical card from a smaller community bank or credit union is not. When a non-exempt issuer acquires a previously exempt one, the Federal Reserve's guidance directs the combined institution to come into compliance with the interchange standards as soon as reasonably practicable, generally within 30 days of the acquisition.
How Does the Cap Compare to What Issuers Actually Charge?
Federal Reserve data on debit transactions show the capped and exempt sides of the market charging noticeably different averages. Across all networks, the average interchange fee collected was 34 cents per transaction, or 0.73 percent of the transaction's value. Fees ran higher on dual-message networks, at 37 cents per transaction (0.79 percent of value), than on single-message networks, at 25 cents per transaction (0.57 percent of value). The split between covered and exempt transactions is sharper still: fees on transactions subject to the interchange cap averaged 23 cents, while fees on exempt transactions — largely cards issued by smaller banks and credit unions not bound by the cap — averaged 51 cents.
Has the Federal Reserve Tried to Change the Cap?
Yes. On October 25, 2023, the Federal Reserve Board proposed lowering the maximum interchange fee, citing changes in issuer costs since the rule first took effect in 2011. Under the proposal, the capped fee on an average $50 debit transaction would have declined from 24.5 cents under the existing rule to 17.7 cents. Alongside the proposal, the Board released its latest biennial report on debit interchange fees, issuer costs, and fraud, and proposed moving the cap to a two-year update cycle tied to that same cost-survey data rather than leaving the dollar figures fixed indefinitely. The proposal's public comment period ran roughly 90 days from its November 14, 2023, publication in the Federal Register. The Code of Federal Regulations, as maintained on the Government Publishing Office's electronic code of federal regulations site, still lists the original 21-cent base component and 5-basis-point ad valorem component as of August 2026, with no revised cap figures recorded in that text.
Why Does the Cap Matter to Merchants and Cardholders?
A merchant accepting a debit card from a capped issuer pays a fee bounded by the formula in Regulation II; a merchant accepting a debit card from an exempt smaller issuer does not get that protection, which is one reason average fees on exempt cards run higher than on covered ones. The rule governs only debit interchange — credit card interchange is set by the card networks and is not subject to this cap. Nothing in Regulation II sets what a merchant is charged by its own payment processor, which layers its own markup, network assessments, and other charges on top of the interchange fee before passing a blended rate to the merchant. For cardholders, the rule sets what banks receive on the back end of a transaction; it does not set, and this article does not describe, any fee charged directly to a cardholder's account.
For a related fintech news perspective, read Federal Reserve's Regulation II Caps Debit Interchange At 21 Cents.
