Regulation II

Also called Reg II, 12 CFR Part 235, debit interchange standard

The Federal Reserve rule implementing Durbin, setting the debit interchange cap and the routing requirements, currently under appeal.

What it is

Regulation II is the Federal Reserve's implementation of the Durbin Amendment. It sets the interchange fee standard for debit transactions at covered issuers, those with 10 billion dollars or more in assets, and it enforces the prohibition on network exclusivity and routing restrictions for all issuers. The long-standing cap is 21 cents plus 5 basis points of transaction value, with an additional 1 cent fraud-prevention adjustment for eligible issuers. In 2023 the Fed proposed lowering that to roughly 14.4 cents plus 4 basis points with a 1.3 cent fraud adjustment, plus a biennial reset mechanism. That proposal has not been finalized as of August 2026, and bank and credit union trade groups continue to press for its withdrawal. The proposed figures are widely reported but should be confirmed against the Federal Register text before being relied on. The routing side has been quietly consequential. Reg II prohibits limiting a debit card to fewer than two unaffiliated networks and prohibits inhibiting merchant routing choice. The Fed's 2022 clarification confirmed this applies to card-not-present transactions, with compliance required from July 1, 2023. The interchange standard itself is under direct legal challenge. In Corner Post, a federal district court vacated it in August 2025 and stayed its own ruling pending appeal, so the existing cap remains in force while the Eighth Circuit considers the case.

Why it matters to your business

The routing provisions are worth money to you today, and many small business gateways still have least-cost routing switched off, particularly on card-not-present transactions where the Fed's clarification took effect in July 2023. That is a real, present saving that requires a configuration change rather than a regulatory outcome. The interchange cap is worth watching rather than acting on. If the cap falls or is restructured, only merchants on interchange plus pricing will see it. That argues for moving to pass-through pricing before the outcome, not after. This is education, not legal advice. The interchange standard is under appeal and the Fed's proposal is not final; treat any specific figure as provisional.

Where it gets contested

Two fights run in parallel and they interact. The rulemaking fight is over whether the cap should come down; the litigation fight is over whether the Fed had authority to build the cap the way it did at all. If the courts vacate the standard, the proposed lower cap becomes largely irrelevant, and if the Fed finalizes a lower cap while the appeal is pending, the litigation posture gets messier. Bank and credit union groups argue that the existing cap already undercompensates issuers for fraud and infrastructure and that lowering it would push costs to consumers through account fees. Merchant groups argue the Fed set the cap generously and has never revisited it despite falling processing costs. What is genuinely unresolved: nobody knows what the debit interchange structure looks like in 2028. The plausible outcomes range from status quo, to a modestly lower fixed cap, to an issuer-specific incremental cost regime that varies transaction by transaction. Any confident prediction should be discounted heavily.

How to check it yourself

Ask your gateway or processor whether least-cost debit routing is enabled on your account for both card-present and card-not-present transactions, and ask them to show you a month of debit transactions by network. Many merchants find it has never been turned on.

Receipts

Claims above that are checkable, with where to check them. Published so you do not have to take anyone's word for it.

Regulation II implements Durbin, sets the interchange standard for covered issuers and enforces routing requirements
federalreserve.gov ↗
Federal Reserve published average debit interchange fee data
federalreserve.gov ↗
A district court vacated the Regulation II interchange fee standard in August 2025 and stayed its ruling pending appeal
cooley.com ↗
Credit union trade groups have urged the Fed to withdraw the debit interchange cap proposal
americascreditunions.org ↗