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Financial Services Law Insights and Observations

DOJ, FTC comment on Fed’s proposed debit card interchange fees and routing changes

Federal Issues DOJ FTC Federal Reserve Debit Cards Fees Bank Regulatory

Federal Issues

Recently, the DOJ and the FTC submitted comments on the Federal Reserve Board’s notice of proposed rulemaking (NPRM) on debit card interchange fees and routing. As previously covered by InfoBytes, the Fed’s NPRM would require banks to ensure that two unaffiliated payment networks are available on their debit cards for online purchases. Among other things, the proposed amendments to the commentary to Regulation II, which implements Section 920 of the EFTA, (i) “clarify that the requirement that each debit card transaction must be able to be processed on at least two unaffiliated payment card networks applies to card-not-present transactions”; and (ii) clarify requirements imposed “on debit card issuers to ensure that at least two unaffiliated payment card networks have been enabled for debit card transactions.”

On August, 11, the DOJ’s Antitrust Division filed a comment in support of the NPRM, “commend[ing] 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.” While offering support for the NPRM, the DOJ asked the Fed to “consider whether the proposal is drafted broadly enough to capture all card-not-present transactions,” adding that “incumbent industry participants may attempt to circumvent the proposed rule.” The DOJ encouraged the Fed to “actively assess additional ways the proposed rule may be enhanced to increase competition for debit payment processing.”

Also on August 11, the FTC submitted a comment letter urging the Fed to clarify and strengthen the implementation of debit card fee and routing reforms, stressing that the Fed should “prohibit debit card networks from paying incentives to an issuer based on how electronic debit transactions are routed by merchants using that issuer’s debit cards.” According to the FTC, “[e]liminating routing-based incentive programs will make it less likely that issuers will search for ways to circumvent Regulation II, whether by violating the rule (necessitating an enforcement action) or by finding a loophole (necessitating future revisions to Regulation II).”

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