Federal Reserve Board Approves Debit Card Interchange Rules

WASHINGTON, D.C. - (Mealey's) The Federal Reserve Board on June 29 approved a final rule establishing standards for debit card interchange fees and prohibiting network exclusivity arrangements and routing restrictions as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

According to the board's press release, under the rule, Regulation II (Debit Card Interchange Fees and Routing), "the final rule establishes standards for assessing whether debit card interchange fees received by debit card issuers are reasonable and proportional to the costs incurred by issuers for electronic debit transactions."

"Under the final rule, the maximum permissible interchange fee that an issuer may receive for an electronic debit transaction will be the sum of 21 cents per transaction and 5 basis points multiplied by the value of the transaction."

An debit card interchange fee is a fee paid by a merchant's bank to the customer's bank for the use of the debit card.

The board also approved an interim final rule "that allows for an upward adjustment of no more than 1 cent to an issuer's debit card interchange fee if the issuer develops and implements policies and procedures reasonably designed to achieve the fraud-prevention standards set out in the interim final rule.  If an issuer meets these standards and wishes to receive the adjustment, it must certify its eligibility to receive the adjustment to the payment card networks in which it participates."

Moreover, in accordance with Dodd-Frank, the board issued a ruled exempting "issuers that, together with their affiliates, have assets of less than $10 billion" from the debit card interchange fee standard.  To assist issuers in determining whether they qualify for the exemption, the board stated that it "plans to publish by mid-July and annually thereafter lists of institutions that are above and below the small issuer exemption asset threshold."

The final rule approved by the board "prohibits all issuers and networks from restricting the number of networks over which electronic debit transactions may be processed to less than two unaffiliated networks.  The effective date for the network exclusivity prohibition is April 1, 2012, with respect to issuers, and October 1, 2011, with respect to payment card networks.  Issuers of certain health-related and other benefit cards and general-use prepaid cards have a delayed effective date of April 1, 2013, or later in certain circumstances."

"Issuers and networks are also prohibited from inhibiting a merchant's ability to direct the routing of the electronic debit transaction over any network that the issuer has enabled to process them." 

The provision regarding debit card interchange fees, as well as the adjustment and the merchant routing provisions, will be effective Oct. 1.

A copy of the press release, the final rule and the interim final rule are available online at http://www.federalreserve.gov/newsevents/press/bcreg/20110629a.htm.

[Editor's Note:  Full coverage will be in the July issue.  For all of your legal news needs, please visit www.lexisnexis.com/mealeys.]

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