How Regulation II Caps Debit Interchange Fees at 21 Cents

Regulation II is the Federal Reserve Board rule that caps the interchange fee a covered debit card issuer can collect on a single electronic debit transaction. The cap is 21 cents plus 0.05 percent of the transaction's value, plus up to a 1-cent fraud-prevention adjustment, and it binds any issuer with, together with its affiliates, $10 billion or more in total assets. The rule has stood since the Board's implementing text took effect on July 20, 2011.

The cap sits at the center of a fee structure that most cardholders never see itemized, but that shapes how banks price checking accounts and how merchants set minimum purchase amounts. Under the Board's regulation, the amount is not a flat number so much as a formula, and the formula only reaches roughly six in ten debit transactions run in the United States. Payments teams on the merchant-acquiring side track this distinction closely, because it changes the economics of accepting a debit card long before any card network's own markup enters the calculation.

What Exactly Does the Fee Cap Limit, and Who Does It Bind?

The cap applies to any interchange fee a covered issuer receives for an electronic debit transaction, and the regulation defines it as the base 21-cent component plus an ad valorem component of 5 basis points of the transaction value, with an additional cent available only to issuers that meet the Board's fraud-prevention standards. On a $50 purchase, that formula works out to roughly 23.5 cents before the fraud adjustment — the base 21 cents plus 2.5 cents of ad valorem component.

The regulatory text requires that interchange fees be "reasonable and proportional to the cost incurred by the issuer with respect to the electronic debit transaction," a standard set out in the Board's rule at 12 CFR 235.3. That standard, not a single dollar figure, is the legal basis for the cap; the cents-and-basis-points formula is how the Board translated it into a number issuers and networks can apply transaction by transaction.

"Covered issuer" is the operative term. It means a bank, thrift, or credit union that, combined with its affiliates, reported total assets of $10 billion or more as of the prior December 31. Everyone below that line is exempt from the cap altogether, though not from the rest of Regulation II, including its network-routing requirements.

Which Issuers Are Exempt, and Why Do Their Fees Run Higher?

The small-issuer exemption under Section 920 of the Electronic Fund Transfer Act carves out any institution with less than $10 billion in combined assets, measured as of December 31 of the prior year. The Federal Reserve Board publishes and periodically updates the list of exempt and covered institutions; its most recent list, current as of December 31, 2025 asset data, was refreshed on May 27, 2026.

Because exempt issuers face no statutory cap, card networks continue to price their debit interchange on the same schedules used before Regulation II took effect, and those schedules run well above the covered-issuer cap. The Board's own transaction-level data make the gap explicit.

For a detailed breakdown of the current fee formula and fraud adjustment, read Federal Reserve Caps Debit Interchange At 21 Cents Plus Fraud Fee.