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Financial Services Law Insights and Observations

Fed seeks comment on lowering the interchange fee for debit card issuers

Bank Regulatory Agency Rule-Making & Guidance Federal Reserve Fees Interchange Fees Dodd-Frank Fraud Federal Register

On October 25, the Fed announced a proposed rule that would lower the maximum interchange fee that a debit card issuer with at least $10 billion in total consolidated assets can receive for a debit card transaction and would also establish a regular process for updating the maximum fee amount every other year going forward. Moreover, the Board approved the release of its latest biennial report which sets forth data collected from larger debit card issuers on interchange fees, issuer costs, and fraud related to debit card transactions.

Under the Dodd-Frank Act, the Fed is required to establish standards for assessing whether the amount of any interchange fee received by a debit card issuer is reasonable and proportional to the costs incurred by the issuer for the applicable transaction, which results in the Fed setting an interchange fee cap. The FRB developed the fee cap in 2011 using data provided by large debit card issuers with $10 billion or more in assets. But since that time, the Fed has found that certain costs incurred by such debit card issuers have declined dramatically, yet the interchange fee cap has remained the same. As such, the Fed (i) proposes to update the interchange fee cap based on the latest data reported to the Board by large debit card issuers, and (ii) proposes to update the fee cap every other year by linking the fee cap to data from the Fed’s biennial report of large debit card issuers.

The comment period will close 90 days after the proposal is published in the Federal Register.