Fed should extend Reg II rule effective date to January 2025

February 13, 2023

The Federal Reserve should extend the effective date for its recent Regulation II final rule to provide debit card issuers time to implement its requirements, CUNA and other organizations wrote to the Fed. The rule—which does—will become effective July 1, and CUNA requested it be extended to Jan. 1, 2025.

The Fed finalized the rule in October 2022 requiring debit card issuers to offer two unaffiliated networks which must also be capable of processing transactions under a new framework. CUNA, Leagues, and credit unions strongly oppose the rule. 

“We remain concerned, as articulated in our prior comment letters and those from financial institutions, that the new mandate imposed by the Final Rule provides debit card issuers, including thousands of community banks and credit unions, with insufficient time to undertake time-consuming and resource-intensive efforts to change their core banking software and payments infrastructure,” the letter reads. “In many cases, these will include selecting, contracting with, onboarding, and testing potential vendor solutions while prudently managing operational and security risks. The rushed timeline for these efforts will create unintentional negative consequences for consumers while banks and credit unions are forced to reprioritize implementation of the Final Rule over other consumer-oriented and security-focused improvements.”

The organizations add that the July 1 effective date, “fails to take into consideration the implementation obstacles facing small issuers and the impact on community banks and credit unions, which will be forced to rush implementation in a way that could jeopardize the safety and soundness of the implementation process and compromise the integrity and reliability of the ultimate result.

The letter acknowledges and affirms Federal Reserve Governor Michelle Bowman’s dissent to the passage of the final rule. Bowman said in an October 2022 statement that “significant questions remain” about how the rule will affect community based financial institutions.