Durbin Interchange Battles Resurface | Ballard Spahr srl


The Fed’s final rule implementing the Durbin Amendment (Regulation II) came into effect in October 2011. Almost ten years later, the final rule still sparks controversy in the form of a retrial and proposals. amendments to the rule and its official commentary.

The Durbin Amendment (Dodd-Frank Section 1075) authorized the Fed to issue regulations to ensure that the amount of any interchange fees received by a major debit card issuer (one with at least $ 10 billion d ‘assets, as well as its affiliates) is reasonable and commensurate with the cost to the issuer. It also limited the restrictions that payment card issuers and networks can place on the processing of an electronic debit card transaction.

New trial. The North Dakota Retail Association and the North Dakota Petroleum Marketers Association filed a lawsuit on April 29, 2021 against the Federal Reserve Board in a federal district court in North Dakota to strike down Regulation II standard for commissions. reasonable and proportional interchange. Regulation II capped the interchange fee received by large issuers (with $ 10 billion or more in assets) at 21 cents plus 0.05% of the transaction. It also allowed a 1 cent adjustment if the issuer implements fraud prevention standards.

In 2014, in NACS c. Board of Governors of the Federal Reserve System, the DC Circuit overturned a lower court ruling finding Regulation II violated the Administrative Procedure Act (APA). He confirmed Regulation II as a reasonable interpretation of the Durbin Amendment limits on debit card interchange fees and network exclusivity.

In their recently filed complaint, trade associations allege Regulation II violates the APA because it is against the law and represents an arbitrary and capricious action by the agency. Among other things, the associations claim that the Durbin Amendment only allows the Fed to account for the additional costs of authorizing, clearing and settling a particular debit transaction (ACS costs). They claim, in the alternative, that even if the Durbin Amendment allowed the consideration of more than additional ACS costs, “it prohibits the Board of Directors from taking into account the specific additional costs that it invoked to support the rule: (1) fixed ACS costs, (2) fraud losses, (3) transaction monitoring fees, and (4) networking processing fees. They also claim that even though the Durbin Amendment allows the Fed to factor in more than the additional ACS costs and these four costs are other eligible costs, the Fed did not have the power to set a single cap. .

Proposal for amendment to article II. The Fed proposed changes to Regulation II and its official commentary to clarify that debit card issuers should allow and allow merchants to choose from at least two unaffiliated networks for cardless debit card transactions, such as online purchases. Comments on the proposal are due 60 days after the date of its publication in the Federal Register.

Regulation II requires at least two unaffiliated payment card networks to be activated on a debit card to process debit card transactions. In its substantive discussion of the proposal, the Fed says that at the time it enacted Regulation II, the market had not developed solutions to broadly support multiple networks over which traders could choose to route goods. card-less transactions. He observes that, although technology has subsequently evolved to allow the use of multiple networks for these transactions, data collected by the Council and information from industry participants indicate that two unaffiliated networks are often not not available to process cardless debit card transactions because some issuers only activate two networks for these transactions. According to the Fed, in the absence of at least two unaffiliated networks for cardless transactions, merchants cannot choose between competing networks to route such transactions. He comments that the continued growth of online transactions, especially due to the pandemic, has brought this issue to light.

The proposed revisions (1) would clarify that the regulatory requirement that each debit card transaction must be able to be processed over at least two unaffiliated payment card networks applies to cardless transactions, (ii) clarify the requirements imposed by the Debit Card Issuer Regulation to ensure that at least two unaffiliated payment card networks have been activated for debit card transactions, and (iii) standardize and clarify the use of certain terminologies. Notably, the Fed called its changes clarifications rather than changes to existing law.

The proposal was quickly criticized by major banking business groups, including the American Bankers Association, the Consumer Bankers Association and the Bank Policy Institute. In a joint statement, groups called the Durbin Amendment “flawed from the start, making it harder for banks and credit unions to serve consumers, leading to unintended consequences for financial institutions and breaking its promise to lower prices Retail”. They said:

The Fed’s decision to review Reg II risks causing even more harm to consumers. The Fed’s own study of debit card transactions, in person and online, shows that merchants and consumers are increasingly benefiting from large investments in innovation and fraud detection embedded in the rails of payment of the country today. By reopening the rules around debit card transactions, the Fed could endanger the convenience, safety and security Americans expect when using their debit cards. We will vigorously oppose any attempt to undermine the payments system to the detriment of consumers.


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