The Federal Reserve Board released a compliance guide that includes frequently asked questions (FAQs) about its Regulation II (Electronic Fund Transfer Act, Section 920). This reg governs debit card interchange fees and network routing and exclusivity limitations.
The FAQs include basic requirements, coverage issues, applicable effective dates, and more. Here are some highlights.
Q: What does Section 920 of the Electronic Fund Transfer Act (EFTA) require?
A: Section 1075 of the Dodd-Frank Act added Section 920 to the EFTA. The Federal Reserve Board’s Regulation II implements it.
Section 920 establishes standards to assess whether the amount of any interchange fee was “reasonable and proportional” to the cost the issuer incurs.
Section 920 also requires a card issuer or payment card network to ensure that debit cards can be processed on at least two unaffiliated networks—for example, one signature network and one PIN network if the card has both signature and PIN capabilities. And it prohibits issuers and payment card networks from
limiting a merchant’s ability to choose the network on which a transaction is routed, with respect to those networks on which the debit card can be used.
Q: What does the rule require for issuers subject to the interchange fee standard?
A: The debit card interchange fee limitations in Section 920 of the EFTA and in Regulation II don’t apply to issuers with less than $10 billion in assets. Section 920 requires the amount of any interchange fee an issuer re-ceives or charges with respect to an electronic debit transaction be reasonable and proportional to the cost the issuer incurs with respect to the electronic debit transaction. Regulation II provides that an issuer complies with this requirement if the amount of the base level of each interchange fee received or charged by the issuer doesn’t exceed 21 cents plus a variable factor equal
to five basis points multiplied by the value of the transaction.
An issuer subject to the interchange fee standards also may receive or charge up to one cent per transaction if it meets the fraud-prevention standards described in Regulation II. The regulation prohibits an issuer that’s subject to the interchange fee standards from circumventing or evading these fee restrictions.
Q: Which issuers aren’t subject to these standards?
A: The interchange fee standards don’t apply to issuers that (together with affiliates) have total assets of less than $10 billion and that hold the account being debited. (Total assets are measured at the end of the calendar year preceding the date of the transaction.) The Fed will publish an annual list of institutions with consolidated assets of less than $10 billion and those with consolidated assets of $10 billion or more.
Q: Which fees aren’t subject to the board’s standards?
A: The interchange fee standards don’t apply in certain other situations, regardless of the asset size of the issuer. For example, debit cards that are part of a government-administered payment program run by a federal, state, or local government, as well as certain reloadable prepaid debit cards, are exempt from the rule’s price-setting and circumvention and evasion aspects.
Q: When do the interchange fee standards take effect?
A: Issuers subject to the fee cap (i.e., $10 billion or more in assets) must have been in compliance with the standards as of Oct. 1, 2011.
Q: How many payment card networks must issuers enable on each debit card?
A: All debit card issuers (regardless of asset size) must enable at least two unaffiliated payment card networks on each debit card.
Next: What types of payment card networks might an issuer enable to satisfy the two-unaffiliated-networks requirement?