Fed Debit Fee Cap: Regulation II Proposal and Court Ruling Explained

On this page 7 sections

1. The Regulation II Debit Interchange Cap Today: What It Covers
2. The Fed's Proposal to Lower Debit Interchange (October 2023)
3. The Corner Post Federal Reserve Ruling and Appeals: A Dated Timeline
4. Regulated vs. Exempt Debit: How to Spot Them on Your Statement
5. Analysis: Modeled Savings per $100 Under Each Scenario
6. Will Your Processor Pass Savings Through? Questions to Ask
7. Next Steps for Retail, Grocery, Restaurant and Liquor Merchants

Key takeaways

• The regulated debit cap has stayed at 21 cents plus 0.05% plus a 1-cent fraud-prevention adjustment since October 1, 2011. That is still the cap as of our latest sources (fall 2026).
• In October 2023 the Fed proposed cutting the cap to 14.4 cents plus 0.04% plus 1.3 cents. The proposal has not been finalized.
• A North Dakota court struck down the fee standard in August 2025 but paused its ruling while the appeal plays out. A Kentucky court upheld the same rule, so two appeals courts are now involved.
• Small-ticket merchants like liquor stores, bars and coffee counters have the most at stake per $100 in sales. Any savings only reach you if your pricing model passes interchange through.

The Regulation II debit interchange cap limits what large banks can charge on every debit card you take, whether at the register or online. Two separate efforts could change that cap. One is a Federal Reserve proposal to lower it. The other is a federal lawsuit that has already produced a ruling against the rule. This article covers what the cap is today, what the proposal and the court cases would change, how to find regulated debit on your statement, and what each outcome could mean per $100 in debit sales.

Status note (as of October 2026): The most recent sources we reviewed, dated late September 2026, show the cap unchanged, the Fed's proposal not finalized and no appeals court decision yet. Check for updates before you make pricing decisions.

The Regulation II Debit Interchange Cap Today: What It Covers

Regulation II is the Fed's rule carrying out the Durbin Amendment, which is Section 920 of the Electronic Fund Transfer Act. The 2011 final rule took effect October 1, 2011. It set fee standards, exemptions and debit routing requirements.

How the Durbin Amendment Debit Fee Cap Works

According to the Federal Reserve, a covered issuer may not receive more than $0.21 plus 0.05% of the transaction value, plus a $0.01 fraud-prevention adjustment if it qualifies.

The cap mostly applies to issuers with at least $10 billion in consolidated assets, according to Greenberg Traurig's summary of the rule. Debit cards from smaller banks and credit unions are "exempt." Their interchange isn't capped by Regulation II and follows the card networks' own fee schedules.

A few points merchants often miss:

• It's a ceiling on interchange only. Network fees and your processor's markup are charged on top.
• It covers in-person and online debit. The cap depends on who issued the card, not where the card was used.
• The fixed component dominates on small tickets. On a $10 sale, the 21 cents works out to more than 2% of the sale.

For a broader comparison, see our guide to debit vs. credit card processing fees.

The Fed's Proposal to Lower Debit Interchange (October 2023)

On October 25, 2023, the Fed's Board voted 6-1 to propose lowering the cap. It would have been the first change since 2011. The proposal was published in the Federal Register on November 14, 2023 (88 FR 78100).

The proposal included three other changes worth knowing:

• Automatic updates. The cap would be recalculated every other year using data from the Fed's biennial survey of large issuers. The 14.4-cent figure was set to apply only through June 30, 2025, so a final rule issued now would likely use newer numbers.
• A cost-recovery target. The staff memo aimed for full cost recovery on 98.5% of transactions across covered issuers. It was based on 2021 data.
• A worked example. The memo says the maximum fee on a $50 debit transaction would be 17.7 cents under the proposal.

Where it stands: The proposal has not been finalized. America's Credit Unions reports that the Fed has signaled it won't finalize the rule until the legal questions are settled. Bank and credit union trade groups have asked the Fed to withdraw it.

The Corner Post Federal Reserve Ruling and Appeals: A Dated Timeline

Corner Post is a truck stop and convenience store in Watford City, North Dakota. It opened in 2018, according to the district court opinion. Its case challenges how the Fed built the cap in the first place.

What the North Dakota Court Decided

The court held that the Fed included costs the Durbin Amendment doesn't allow. The statute points to the issuer's incremental costs of authorizing, clearing and settling a particular transaction. Senator Durbin's amicus brief announcement names fixed costs and fraud losses among these "third category" costs. According to Cooley, the court also faulted the single one-size-fits-all cap.

Why Your Rates Haven't Changed

The court stayed its own ruling until the appeal is resolved, to keep debit interchange from becoming an unregulated market. The current cap stays in force in the meantime. Under the amended judgment, the routing and exclusivity rules weren't vacated.

Banks argue the cap should stay as is, while retailers argue it should be lower. Neither side's position is a prediction of what the courts will do.

Regulated vs. Exempt Debit: How to Spot Them on Your Statement

Your statement already shows which debit transactions were capped, if you know where to look.

1. Ask for an interchange-level report. Bundled or flat-rate statements may not break out interchange categories at all.
2. Look for "regulated" in category names. Card networks label their regulated debit categories this way. The exact wording varies by network and processor.
3. Compare per-item costs. On regulated debit, the interchange on a given ticket should never exceed the cap formula. Exempt debit follows network schedules and may cost more.
4. Check how prepaid and online debit are labeled. Prepaid and card-not-present debit can fall into different categories than in-person debit.
5. Track your regulated share. Whether a debit card is regulated depends on your customers' banks, so it varies by business and region.

If your statement doesn't show this level of detail, our guide to interchange-plus vs. flat-rate pricing explains why it matters.

Analysis: Modeled Savings per $100 Under Each Scenario

The figures below are illustrative. They cover regulated debit interchange only, assume the fraud adjustment applies and leave out network fees and markup. To get interchange per $100, divide 100 by the average ticket and multiply by the per-transaction cap.

Scenario 1: The Appeals Court Reverses

The 21-cent-plus-0.05% cap stays. The Fed could still finalize, revise or withdraw its 2023 proposal.

Scenario 2: The Fed Finalizes Its Proposal

This is the table above. Because the proposal recalculates the cap every two years, a final rule would probably use updated numbers rather than exactly 14.4 cents.

Scenario 3: The Vacatur Is Affirmed

No new number exists yet. The Fed would presumably need to write a new standard, and the timing and level are unknown. Use this rule of thumb instead: every 1 cent cut from the per-transaction cap saves $0.10 per $100 at a $10 ticket, but only $0.01 at a $100 ticket.

Illustrative example: A liquor store with $500,000 a year in regulated debit sales and a $10 average ticket would pay about $11,250 in regulated interchange under the current cap. Under the 2023 proposal it would pay about $8,050, a difference of roughly $3,200. That saving only reaches the store if its pricing passes interchange through.

Grocers have high volume but larger baskets, so their savings per $100 are smaller. Bars and liquor stores have many small tickets and gain the most per dollar. For restaurants, interchange is figured on the final amount including the tip, so tipping slightly raises the effective ticket.

Will Your Processor Pass Savings Through? Questions to Ask

A lower cap reduces what issuers can collect. It doesn't automatically lower what you pay. Your pricing model decides that:

Questions to ask your provider:

• Is regulated debit billed at actual interchange or folded into a blended rate?
• If the cap drops, will my statement show the lower interchange right away?
• Can I get monthly reports that separate regulated and exempt debit?
• Will my markup or any fees change if interchange goes down?
• Do I have early termination fees if I switch providers to get pass-through pricing?

For a fuller checklist, see how to choose a merchant service provider. For other fee fights still in progress, see our coverage of the swipe fee settlement and the Illinois Interchange Fee Prohibition Act.

Next Steps for Retail, Grocery, Restaurant and Liquor Merchants

Nothing on your statement has changed yet. You can still prepare:

1. Pull three months of statements and work out your regulated debit share and average ticket.
2. Run the per-$100 math above using your own numbers.
3. Confirm in writing whether your pricing passes interchange changes through.
4. Watch for decisions from the Eighth and Sixth Circuits and any action by the Fed.

MannyPay works with grocery markets, liquor stores, restaurants and bars and retail businesses. Its cost programs include cash discount, dual pricing, surcharging where permitted and zero cost processing. To review your options, request a free quote. A MannyPay specialist will respond within one business day.

This article is general information, not legal or financial advice. Regulatory and court developments can change quickly, so confirm current status with a qualified professional.

Sources

1. Federal Register: Debit Card Interchange Fees and Routing (Proposed Rule, Nov. 14, 2023)
2. Federal Reserve Board Staff Memo: Proposed Revisions to Regulation II's Interchange Fee Cap (Oct. 18, 2023)
3. Federal Reserve Board: Regulation II Average Debit Card Interchange Fee by Payment Card Network
4. Federal Register: Regulation II Final Rule (July 20, 2011)
5. Greenberg Traurig: Fed Issues Proposed Rule Lowering Regulation II's Debit Interchange Cap
6. FindLaw: Corner Post Inc. v. Board of Governors of the Federal Reserve System (D.N.D. 2025)
7. Cooley: District Court Vacates Regulation II's Debit Card Interchange Fee Standard
8. Consumer Finance Monitor: ND District Court Invalidates Longstanding Debit Card Interchange Rule
9. Sen. Dick Durbin: Amicus Brief in Support of the Corner Post Ruling
10. ABA Banking Journal: ABA Files Amicus Brief Urging Eighth Circuit to Reverse Vacatur of Reg. II
11. ABA Banking Journal: Federal Reserve Files Reply Brief in Reg. II Appeal
12. America's Credit Unions: District Court Rules Reg II Is Lawful and Reasonable
13. America's Credit Unions: Fed Interchange Rule Challenge Heard by Appeals Court
14. America's Credit Unions: Fed Should Withdraw Debit Interchange Cap Proposal
15. Pulse: Where Regulation II Stands (September 2026)

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About the author

MannyPay Editorial Team

Beyond the Swipe's editorial desk researches the publication's guides and news and cites its sources in every article. Articles reviewed by a named MannyPay editor carry that editor's byline.

This article is for general educational purposes and is not legal, tax or financial advice. Card network rules and state laws change; confirm current requirements for your business.