InfoBytes Blog
Fed finalizes debit card transaction requirement changes
On October 3, the Federal Reserve Board adopted a final rule amending Regulation II, which implements Section 920 of the EFTA, to require that each debit card transaction, including “card-not-present” transactions, must be able to be processed on at least two unaffiliated payment card networks. The final rule, which is substantially similar to the Fed’s notice of proposed rulemaking issued in May 2021 (covered by InfoBytes here), also clarified that the debit card issuer is responsible for ensuring at least two unaffiliated networks have been enabled to process a debit card transaction, and standardizes and clarifies the use of certain terminology in the Fed’s Official Board Commentary on Regulation II. The Fed noted that when the rule was initially issued in 2011, the market had not yet developed solutions to broadly support multiple networks for card-not-present debit card transactions. Claiming technology has since evolved to address these challenges, the Fed said the final rule includes changes to make it easier for debit card issuers to determine whether they are in compliance and encourages competition between networks. The Fed noted, however, that the final rule does not modify interchange fee requirements. The agency said it will continue to review these requirements in light of recently collected debit card industry cost data, and may propose to modify these requirements in the future. The final rule is effective July 1, 2023.
Federal Reserve Governor Michelle W. Bowman voted against adopting the final rule. “During the public comment process, community banks raised substantial concerns with the proposal,” she said. “Although the Board has attempted to identify the likely effects of the proposed rule based on available information, I believe that significant questions remain about how the rule will affect banks, and particularly community banks, with respect to both fraud and the cost of compliance. Given this continued uncertainty, I do not support the final rule.”