Understanding the Federal Reserve Board Rules of the Durbin Act
On Wednesday, June 29, 2014 the Federal Reserve Board issued its ﬁnal rules on Section 1075 of the Dodd— Frank Wall Street Reform and Consumer Protection Act, typically referred to as the “Durbin Amendment.” Elavon cannot yet forecast changes that will be made by the card brands or debit networks as a result of these rules, as these entities have just begun communicating their plans for implementation. We are working closely with industry leaders and will provide you with details about impacts and updates as they are identiﬁed.
What Does this Mean?
The ﬁnal rule implementing the Durbin Amendment imposes interchange fee caps on certain debit transactions and prohibits network exclusivity and network routing restrictions (as described below). The Durbin Amendment does not require changes to existing merchant debit card acceptance or POS procedures. In addition, the following portions of the Durbin Amendment did not require rulemaking and remain effective: v Merchants have the right to set a minimum amount (of $10 or less) for which they will accept credit cards; however, the Durbin Amendment does not affect existing network rules regarding minimums for debit cards (so networks are free to prohibit minimum purchase amounts on debit cards). o Merchants may offer discounts for any particular form of payment (including those favon’ng the use of cash or checks); however, the Durbin Amendment does not protect merchants that favor one card brand or one issuer over another which is prohibited by the card schemes.
PIN & Signature Debit Cards
The ﬁnal rule implementing the Durbin Amendment only regulates the cap for debit card interchange costs on speciﬁc PIN and signature debit cards from issuers with assets of $10B or greater. Exclusions: Any ﬁnancial institution with less than $10B in assets, cards issued in connection with certain govemment-administered payment programs and reloadable prepaid cards are exempt at this time. Other prepaid cards (such as netvvork-branded gift cards) are subject to the interchange cap if issued by regulated issuers (i.e., issuers with assets of $10B or greater).
Network Exclusivity and Routing
Currently, network rules require transactions to route over speciﬁc networks. Beginning October 1, 2014 networks can no longer dictate routing or restrict merchants from steering cardholders to use a particular authorization method (e.g., signature or PIN); merchant I acquirer routing preferences will prevail. The prohibitions on network exclusivity and merchant routing restrictions apply to all issuers regardless of size. Effective April 1, 2012, the majority of debit cards (with a few speciﬁc exceptions) must have the ability to process on at least two unafﬁliated networks (which may be one signature network and one PIN network so long as the two networks are not operated by the same or afﬁliated companies).
Interchange Costs & Issuer impacts
Effective October 1, 2014, the interchange cap on both signature and PlN debit transactions for regulated issuers will be $0.21 per transaction plus 5 basis points of the value of the transaction. ln addition, issuers who meet certain fraud prevention standards (as set forth by the Federal Resen/e Board) are able to charge an additional A $0.01 per transaction. These rates apply to all point of sale environments, including card not present. Not all debit transactions are subject to the revised interchange fee caps. With certain qualiﬁcations, cards issued by issuers with less than _ $1 OB in assets (the Federal Reserve will publish a list of exempt banks); transactions made pursuant to certain » govemment-administered payment programs; and transactions made using certain reloadable general-use prepaid cards will not be subject to any interchange restriction.
Frequently Asked Questions
Q: Does the interchange fee cap apply to all debit transactions?
A: No. The cap only applies to transactions from issuers having assets of $1 OB or greater. There are approximately 100 banks with 2 $1 OB in assets. With certain qualiﬁcations, transactions made using cards issued by any ﬁnancial institution with less than $1 OB in assets, cards issued in connection with certain govemment-administered payment programs, and certain reloadable prepaid cards are exempt from the interchange fee cap.
Q: What will the transaction cost be associated with debit cards issued from exempt banks?
A: At this time, there is no decision as to whether or not two tiers of interchange fees (one for exempt issuers and one for regulated issuers) will be supported by the various payment networks. Several PlN debit networks have announced support of two-tiered pricing. Cards issued from exempt issuers will not be subject to the interchange restrictions.
Q: Are other costs, such as Card Association assessments, PIN network switch costs, etc. changing?
A: At this time, the payment networks have not yet announced any pricing changes.
Q: What exceptions are there?
A: As discussed above, with certain qualiﬁcations, transactions made using cards issued by any ﬁnancial institution with less than $10B in assets, cards issued in connection with certain govemment-administered payment programs, and certain reloadable prepaid cards are exempt from the interchange fee cap. ATM transactions, three-party networks, and cards that access bona ﬁde trust accounts also are not subject to the ﬁnal rule implementing the Durbin Amendment. In addition, the effective dates for implementation for a few card types, such as health beneﬁt cards and prepaid cards, are delayed; these types of cards, however, are a very small portion of the overall debit card circulation.
Q: ls there a website for more infomiation?
A: Yes. Visit the Federal Reserve Board’s website at wvwv.federalreserve.gov.