The Federal Reserve Board on Friday invited public comment on proposed changes to Regulation II (Debit Card Interchange Fees and Routing) to clarify that debit card issuers should enable, and allow merchants to choose from, at least two unaffiliated networks for card-not-present debit card transactions, such as online purchases. The Board views these clarifications of Regulation II’s existing requirements as necessary in light of information indicating that often only one network is enabled for such transactions.
Additionally, the Board published today a biennial report containing summary information on debit card transactions in 2019.
Regulation II implements section 920 of the Electronic Fund Transfer Act (EFTA). Among other things, the regulation requires that there be at least two unaffiliated payment card networks enabled on a debit card to process debit card transactions. At the time the Board promulgated Regulation II, the market had not developed solutions to broadly support multiple networks over which merchants could choose to route card-not-present transactions. Although technology has subsequently evolved to address these barriers, data collected by the Board and information from industry participants indicate that two unaffiliated networks are often not available to process card-not-present debit card transactions because some issuers do not enable two networks for those transactions. The absence of at least two unaffiliated networks for card-not-present transactions forecloses the ability of merchants to choose between competing networks when routing such transactions, an issue that has become increasingly pronounced because of continued growth in online transactions, particularly in the COVID-19 environment.
The proposed revisions would clarify that card-not-present transactions are a “particular type of transaction” for which two unaffiliated payment card networks must be available. The proposed revisions would further clarify the responsibility of the debit card issuer in ensuring that at least two unaffiliated networks have in fact been enabled to comply with the regulation.
The Board also published today a report on debit card transactions in 2019, including information on volume and value, interchange fee revenue, certain issuer costs, and fraud losses. The report is the sixth in a series published every two years as prescribed by section 920 of the EFTA and summarizes information collected from debit card issuers subject to the interchange fee standard in Regulation II and payment card networks. Key highlights are provided at the beginning of the report. The Board will continue to review the parts of Regulation II that directly address interchange fees for certain electronic debit transactions in light of the most recent data collected by the Board pursuant to section 920 of the EFTA and may propose revisions in the future.
The Board’s Federal Register notice and report are attached.
Board Memo: Proposed Amendments to Regulation II (Debit Card Interchange Fees and Routing) to Clarify the Prohibition on Network Exclusivity; Biennial Report on 2019 Interchange Fee Revenue, Covered Issuer Costs, and Covered Issuer and Merchant Fraud Losses Related to Debit Card Transactions (PDF)