[18] Judge Leon held the Federal Reserve Board "clearly disregarded Congress' statutory intent by inappropriately inflating all debit-card transaction fees by billions of dollars." Payment card networks are not required by section 920 to establish higher interchange fees for exempt issuers (i.e., establish a two-tier fee structure) though section 920 and Regulation II permit networks to collect higher interchange fees for exempt small issuers. The start date of the contract. As the state of our economy remains uncertain due to COVID-19, it's time for Congress to repeal this . The new proposal would make issuers responsible for ensuring that all transactions with US merchants can be routed across two unaffiliated networks. This is thanks to a 2010 federal law known as the Durbin Amendment, which requires that merchants be able to select from at least two unaffiliated networks through which they can route their. [11] This rule also allows issuers to raise their interchange fees by as much as one cent if they implement certain fraud-prevention measures. Reloadable general-use prepaid cards: April 1, 2013, except that reloadable general-use prepaid cards sold prior to April 1, 2013, are not subject to the prohibition on network exclusivity unless and until they are reloaded, as follows: If sold and reloaded prior to April 1, 2013: May 1, 2013. The Board is responsible for prescribing regulations pursuant to the Durbin Amendment, a statute designed to promote competition in the debit card market. 8. 202-514-2000. Therefore, Brussels Environment also participates in meetings and . Section 920 of the Electronic Fund Transfer Act (EFTA) was added by Section 1075 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.2 It contains several provisions related to debit cards and electronic debit transactions. Unfortunately, many merchants switched to routing their debit payments on whatever the least-cost option is for them. 4. However, blaming the credit cards for high prices is little more than an exercise in political distraction: New routing mandates will not do a thing to help small merchants and would likely reduce the ability of poorer Americans to obtain credit cards altogether. Comments are due 60 days after the rule is published in the Federal Register. The rule was upheld when the Supreme Court denied petition for certiorari in 2014. 10. All rights reserved. The final rule is substantially similar to the original proposal, which ABA and other bank and credit union trade groups vigorously opposed after it was issued in the spring of 2021. Washington, DC 20036 Optimizing transaction environments in the aftermath of the Durbin Issuers and networks were required to comply with the prohibition on routing restrictions by October 1, 2011. specify that the prohibition on network exclusivity applies to card-not-present debit card transactions, 2.) Some of those interchange fees are used to pay the administrative costs of operating the card programs and extending credit to consumers and small businesses, but much of that money also gets returned to consumers via their credit cards rewards program60 percent is the industry average. The MPC said that banks should actually have to reduce fraud before receiving more funds. The regulation would also lead credit card issuers to raise the income and credit score threshold for people to obtain a credit card. Illinois Senator Richard Durbin proposed the amendment late in the drafting process, so it's now named after him. 12. The Durbin Amendment is a law that was passed in 2010, as part of the Dodd-Frank Act. Thus, fees charged in connection with transactions wherein either the merchant or the account being debited is located in a foreign country are not covered by section 920 or Regulation II. Designed to give merchants a choice of networks over which a debit card transaction may be routed, the Durbin Amendment requires issuers to enable at least two unaffiliated debit access networks. "[21], On August 18, 2014, NACS filed a petition for certiorari. Because PINless debit transactions over smaller debit networks often carry lower merchant transaction fees than transactions routed over Visa and Mastercard, CMSPI estimates that U.S. merchants could save at least $2 billion per year in debit fees if PINless functionality were made fully available. The Durbin Amendment explained Crafted by Senator Dick Durbin (D-ill), the Durbin Amendment had two major provisions. However, small debit network competitors vigorously compete for a portion of the debit card marketplace, and we have long supported steps to encourage this competition in order to help lower transaction costs and incentivize efficiencies and security enhancements. Specifically, the Fed issued a proposal that would amend Regulation II, which implements Durbin, to apply the requirement that debit card transactions be able to be processed on at least two unaffiliated payment card networksfor example, a PIN debit and a signature debit networkto card-not-present transactions, which have grown from 10% of debit purchases in 2009 to 23% in 2019. The Federal Trade Commission is responsible for enforcement with respect to other entities not covered by the above regulators. In the last few months it has investigated the prescription drug market, online platforms operated by big tech companies, oil and gas producers, and food delivery apps, to name but a few. However, the American Bankers Association and several trade associations today warned that revisiting the flawed from the beginning Durbin Amendment would make it harder for banks to deliver low transaction prices to acquirers and consumers. Lawmakers introduce House version of ABA-opposed Durbin-Marshall bill Even assuming a low rate of 1% for acceptance costs would mean that Amazon paid $2.2 billion in fees. Consumers have come to like their rewards cards, and for good reason: in 2020 rewards equaled roughly $60 billionno mere chump change. Innovation spotlight: Delivering a faster and more affordable home equity experience. Even worse were the significant financial costs consumers faced after the Durbin Amendment capped interchange fees and forced multiple payment networks onto debit cards, driving networks to lower their merchant rates to ensure the next transaction routes on their network. This effort should include examining whether large debit card issuers and the dominant card networks may have mutual incentives to stifle PINless debit competition from smaller debit networks and whether they have violated Regulation II. If the card issuing bank is regulated, also known as an exempt bank, it means that their assets equal more than $10 billion. This page is not available in other languages. Innovation spotlight: Delivering a faster and more affordable home equity experience. If an issuer believes that information in the Board's lists is not accurate, the issuer should file a correction request as instructed on the Board's website. The fee is not an interchange fee. If increased competition is the goal, it is safe to . Regulation II requires issuers that are subject to the interchange fee standards to retain evidence of compliance with the regulation's requirements for not less than 5 years from the end of the calendar year in which the electronic debit transaction occurred. No. Judge Leon ordered the Federal Reserve to re-write its rule governing the cap on debit card swipe fees and implement a temporary regulation as well. For this purpose, total assets are measured at the end of the calendar year preceding the date of the transaction.4 The Board will publish annually lists of institutions with consolidated assets of less than $10 billion and those with consolidated assets of $10 billion or more. . Last week Senator Durbin signaled he is considering adding only Mastercard and Visa to this list by introducing legislation that would mandate that credit cards be enabled with at least two unaffiliated networks, which would require the replacement of every credit card currently in circulation with a new, more expensive card for consumers. Fed finalizes rule expanding Durbin routing requirements to card-not Washington, DC 20036 Specifically, section 920 prohibits networks from inhibiting the ability of merchants to . 7. 9. Unsolicited e-mails and information sent to DLA Piper or the independent DLA Piper Relationship firms will not be considered confidential, may be disclosed to others, may not receive a response, and do not create a lawyer-client relationship with DLA Piper or any of the DLA Piper Relationship firms. Regulation II implements the provisions of section 920 of the EFTA that govern debit card interchange fees and network routing and exclusivity limitations. options for choosing a technology approach for routing chip-based debit transactions under the Durbin Amendment network non-exclusivity rules. On Thursday, July 28, Sens. A Durbin Amendment For Credit Cards Will Reduce Their Ubiquity - Forbes Opinions expressed by Forbes Contributors are their own. A .gov website belongs to an official government organization in the United States. Before Durbin, issuers mainly called the routing shots. DLA Piper Community banks opposed the changes because online debit card transactions are the fastest growing transaction type and the cost to process these PIN debit transactions is more than double the interchange fee paid to the banks. The NAFCU-opposed Credit Card Competition Act (CCCA) seeks to do just that. The Fed also today published its biennial survey of debit card issuers economics, which found that smaller debit card issuersthose covered by the Durbin Amendments routing provision but not its interchange fee capcontinue to see a decline in revenue from interchange fees on PIN debit transactions since the provision took effect. The change is designed to ensure that merchants will have at least two unaffiliated networks from which to choose in accepting cards online or by phone. 202-514-2007, Department of Justice Main Switchboard Whom should you contact if you have further questions? Brussels Environment (IBGE-BIM) is the Environment and Energy Agency of the Brussels-Capital Region of Belgium. Deep Dive: How Payment Card Networks Win Merchants Over - PYMNTS.com However, for a card-not-present transaction to be routed over a PINless debit network, the card-issuing bank must enable the cards Bank Identification Number (BIN) so that the PINless functionality will work. The lease or rental contract ( droit de bail or bail loyer/huurcontract) should include the following: Name of the owner and name of the tenant. Will Financial Issues In Commercial Real Estate Impact Affordable Housing? Section 920 also prohibits networks from inhibiting the ability of any Federal agency or institution of higher education to set maximum dollar values for the acceptance of credit cards, to the extent that such maximum values do not differentiate among issuers or networks. Debit cards that use transaction qualification or substantiation systems, such as certain health or other benefit cards: April 1, 2013. 11. [11] An issuer eligible for this adjustment, could therefore receive an interchange fee of as much as 24 cents for the average debit card transaction (valued at $38),[11] according to the Federal Reserve. The proposal would also clarify that the debit card issuer is responsible for ensuring at least two unaffiliated networks have been enabled and would standardize and clarify certain terms and phrases in the Feds Reg II commentary. D.C. Circuit Appellate Court Overturns Lower Court Decision on FRB's [6], The law applies to banks with over $10 billion in assets, and these banks would have to charge debit card interchange fees that are "reasonable and proportional to the actual cost" [7] of processing the transaction. While other regulators, including the FTC, OCC, FDIC, and NCUA, share jurisdiction in ensuring that payments industry participants are following the law and Regulation II when it comes to debit routing, the Federal Reserve can play a coordinating role across agencies in ensuring that anticompetitive market practices are identified and addressed. [17], The opinion was generally scathing and noted that the agency overruled its own staff, who had recommended a cap of 12 cents per transaction. Podcast: Perspectives from two bank risk and compliance leaders, Podcast: The anatomy of a community bank ransomware attack, Podcast: Analyzing first-quarter earnings and 2023 annual meetings. The prohibition on network exclusivity applies to electronic debit transactions performed with any debit card as defined in section 235.2 of Regulation II, regardless of the form of such debit card. I appreciate the opportunity to share some thoughts with all of you today on the Antitrust Divisions global approach to criminal enforcement. Specific questions with respect to implementation of the rule should be addressed to your Federal functional regulator. In October 2022, the Federal Reserve issued a final ruling on Regulation II (Durbin Amendment), which requires two unaffiliated networks on a debit card and sets a cap on debit interchange rates. 601 note). While the final rule does not modify requirements concerning interchange fees, any reopening of Regulation II and the Durbin Amendment extracts value from debit-card transactions. If sold prior to April 1, 2013 and reloaded on or after April 1, 2013: 30 days after the date of reloading. Issued on a prepaid basis in a specified amount; Redeemable upon presentation at multiple, unaffiliated merchants for goods or services; Not issued or approved to access an account held by or for the benefit of the cardholder (other than a subaccount or other method of recording or tracking funds purchased or loaded on the card on a prepaid basis); Reloadable, and not marketed or labeled as a gift card; and. The fee is charged or received with respect to an electronic debit transaction initiated using a general-use prepaid card that is--. Section 920 also prohibits networks from inhibiting the ability of merchants to set credit card minimums below $10 that do not differentiate among issuers or networks.3 These provisions of section 920 are self-executing and have not been addressed in Regulation II. A payment card network may not restrict an issuer's ability to contract with any payment card network that may process the issuer's electronic debit transactions. Section 920 is codified at 15 U.S.C. The Durbin amendment, implemented by Regulation II,[1] is a provision of United States federal law, 15U.S.C. An official website of the United States government. Return to text, 2. Issuers that receive interchange fees subject to the standards must comply with the standards beginning October 1, 2011. The monthly rent amount. Section 920 of the EFTA and section 235.7(a) of Regulation II prohibit any issuer or payment card network from directly or indirectly restricting the number of payment card networks on which an electronic debit transaction may be processed to fewer than two unaffiliated networks (the "prohibition on network exclusivity"). ATM-only networks do not count toward the number of unaffiliated networks enabled to process an electronic debit transaction. Washington DC 20530, Office of Public Affairs Direct Line 6. Networks, however, may prohibit discounts and incentives to the extent that the discounts differentiate among issuers or networks. The final rule's effective date is July 1, 2023. 1693o-2, that requires the Federal Reserve to limit fees charged to retailers for debit card processing. Banks saw billion-dollar interchange fee losses and scrambled to earn back revenue by cutting free checking and raising fees and account minimum balances. In Montana and across the country, electronic payment methods are more essential than ever before. retailers and restaurants cannot afford to pay unnecessarily high fees for debit card transactions at a time when they have been hit hard by the pandemic and its economic effects, wrote Durbin and Welch. The Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance, including pioneering work in pre-dispute arbitration programs. As part of the Dodd-Frank Act, Congress enacted the so-called "Durbin Amendment," so named after its sponsor Senator Richard Durbin (D-IL) which amended the Electronic Fund Transfer Act (the. WASHINGTON U.S. We urge you to play such a role when it comes to potential anticompetitive practices involving PINless debit routing. The average interchange fee for exempt signature debit transactions rose modestly from 51 cents in 2011 to 54 cents in 2019. Regulation II Expanded to Require Two Unaffiliated Networks on Card Not Present Transactions, banking industry group February 1, 2022 letter, Elizabeth Warren and other congressional members urge rulemaking by the Department of Education re: regulating college/bank partnerships for debit/prepaid cards for student aid disbursement, Scrutiny of campus financial products grows, CA Department of Financial Protection and Innovation, Conference of State Bank Supervisors (CSBS), Democratic Attorneys General Association (DAGA), National Association of Attorneys General (NAAG), Nationwide Mortgage Licensing System (NMLS), American Bankers Association Dodd-Frank Tracker for CFPB, CFPB settles action against processor of mortgage payments for erroneous processing of payments and deficient information security practices, Bill to license commercial lenders proposed in New York, This weeks podcast episode: The legality of regulation by enforcement and other considerations, a discussion with special guest, David Zaring, Professor, Wharton School of the University of Pennsylvania, CFPB files amicus brief in support of private plaintiffs in reverse redlining lawsuit, Nevada passes law to regulate earned wage access providers. Cover Story: The Great Debit Network Reshuffle [5] This was considered a major loss for banks, who receive billions of dollars a year in income from swipe fees. At the same time, the department encourages the Board to consider whether there may be ways to improve upon the proposal. Federal Reserve data shows that the Durbin Amendment's price cap has negatively impacted small financial institutions. U.S. Department of Justice on October 3, 2022 Newsbytes, Payments, Policy The Federal Reserve today finalized a controversial, ABA-opposed rule expanding Regulation II, the implementing regulation for the Durbin Amendment. And thank you to Brookings for hosting this event. In order to assist small issuers in identifying which networks have implemented two-tier fee structures, the Board will publish annually a list of the average interchange fee each network provides to its covered issuers and exempt issuers. If ultimately implemented, this rule would amplify the damage of the flawed Durbin Amendment, which never delivered on its promise to lower retail prices for consumers. Extradition: Whose Rights Are Really At Stake? This change is not intended to be a substantive revision rather it is intended to specifically identify the issuer as the party bearing responsibility for complying with this requirement. Federal Reserve Proposes Changes to Modernize the Durbin Amendment to By reopening the rules surrounding debit card transactions, the Fed could put the convenience, safety, and security that Americans have come to expect when they use their debit card at risk. Consumers who are at greater risk of defaulting on their payments may no longer be costeffective customers for banks and credit unions. The new rule extends the mandate that debit card transactions be processed on at least two unaffiliated payment card networksfor example, a PIN debit and a signature debit networkto card-not-present transactions. [10] As a result of the government limiting their revenue from interchange fees, banks made plans to raise account maintenance fees to compensate. These days consumers have more ways to pay for transactions than ever before and new market entrants and technologiesmost notably blockchain and Buy Now Pay Later providershave the potential to completely disrupt the market. To comply with the prohibition, an issuer must enable at least two unaffiliated payment card networks that meet certain requirements (as described in Question 8, below) to process an electronic debit transaction. From our smallest rural towns to our biggest urban cities, consumers depend on safe and accessible payment methods. 13. Is there more guidance on the provisions of Regulation II? Federal Reserve Governor Michelle Bowman was the only governor to vote against issuing the final rule. So going forward those banks will need to add an unaffiliated network.Merchants will have a choice as to which . 235.9(c). Right now, there is a major threat to Montana consumers making its way through Congress: proposals to extend the routing mandates of the 2010 Durbin Amendment. 15 U.S.C. For example, fees on cards used for electronic benefit transfer or reimbursement systems in connection with government food assistance programs are not subject to section 920 or Regulation II. "[20], The three judge panel noted that "Congress put the Board, the district court and us in a real bindgiven that the Durbin amendment was crafted in conference committee at the eleventh hour, its language is confusing and its structure convoluted. Networks: Prepaid Cards Navigate the Durbin Waters Secure .gov websites use HTTPS This regulation has helped preserve competition in the debit network industry. 1693o-2. According to the payments industry analysis company CMSPI, currently a merchant is unlikely to be able to use PINless more than 50% of the time due to issuers refusal to enable their cards to use PINless functionality. For example, a network-branded general purpose reloadable card that is not marketed at a retailer as a gift card or gift certificate is exempt from the interchange fee restrictions if the funds are only accessible through the card and the card program does not permit the cardholder to access the funds through other means, such as writing checks or initiating ACH transactions. We found little evidence that this loss would be made up through lower prices for consumers. The Durbin Amendment forced banks to add an unaffiliated payment network to their debit cards and imposed a cap on debit card interchange fees, which banks charge to process debit transactions. We commend the Board for its efforts to promote competition in this important part of the debit card industry by ensuring that smaller debit networks will have a greater ability to compete for merchants business, said Acting Assistant Attorney General Richard A. [16], In July 2013, U.S. District Judge Richard Leon ruled that the Federal Reserve did not comply with the Durbin amendment when crafting a rule to limit debit card swipe fees. This portion of section 920 limiting the interchange fee that an issuer may receive from or charge to a merchant does not apply to interchange fees of debit card issuers with total assets below $10 billion. Fiber is an enormous asset for companies, enabling them to fully exploit the possibilities of digitalisation and to remain competitive, agile and innovative. 1693o(c); 12 C.F.R. An issuer that receives the fraud-prevention adjustment must review its policies and procedures annually and update them as appropriate. An issuer also may enable a signature network and an affiliated PIN network, provided the issuer also enables another unaffiliated PIN or signature network to process an electronic debit transaction. This capwhich took effect on October 1, 2011, rather than July 21, 2011, as was previously announcedwill reduce fees roughly $9.4 billion annually, according to CardHub.com. Lock Big box stores are now focused on credit card routing mandates, which we know from prior experience will end up hurting consumers. For example, fees charged for checks, credit cards, or automated clearing house (ACH) transactions are not covered by section 920 or Regulation II. Section 920 directs the Board to establish standards for assessing whether the amount of any interchange fee is reasonable and proportional to the cost incurred by the issuer. For example, the National Credit Union Administration is responsible for enforcing the rule with respect to federally insured credit unions; the Office of the Comptroller of the Currency is responsible with respect to national banks and federal thrifts; the Federal Reserve Board is responsible with respect to state member banks; and the Federal Deposit Insurance Corporation is responsible with respect to state nonmember banks and state-chartered thrifts. Amid substantial growth in online purchases in recent years, the Federal Reserve today reopened its rule on the Durbin Amendment. The department supports the Board's proposed rule because it has the potential to increase competition by lowering one of many barriers to entry and expansion that new or smaller competitors face in . Networks may require an issuer that is not on either list to certify whether it has consolidated assets of less than $10 billion.5. Thank you, Aaron, for that kind introduction. We are deeply disappointed in the Federal Reserves decision to issue a final rule on changes to Reg II without resolving multiple flaws in the proposal identified by the more than 1,700 community financial institutions who offered their comments, ABA President and CEO Rob Nichols said. A finding of circumvention or evasion will depend on all relevant facts and circumstances. Back in 2011, Senator Tester recognized the dangers of the Durbin Amendment and tried to implement a period of study to examine any unintended consequences. A locked padlock [10] On June 29, 2011, the Fed issued its final rule, which holds that the maximum interchange fee an issuer can receive from a single debit card transaction is 21 cents plus 5 basis points multiplied by the amount of the transaction. It's important to note that the Durbin Amendment and Reg II specifically state that merchants must be able to choose between at least two unaffiliated networks to process debit card payments. Understanding the Durbin Amendment and How It Impacts Your Business Consumers stand to lose from this. As you know, the electronic payments industry is dominated by the card network duopoly Visa and Mastercard. CFPB, Federal Agencies, State Agencies, and Attorneys General. ABA and other groups objected, noting that the Feds Reg II update would impose costly and complex compliance burdens, particularly for smaller card issuersand that the Feds so-called clarification would materially change the compliance obligations associated with Reg II. Specifically, the Board should consider whether the proposal is drafted broadly enough to capture all card-not-present transactions.

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