The Federal Reserve on June 29 issued a final rule establishing limits on debit card interchange fees. Under the rule, which was required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, 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. The Federal Reserve also approved a companion 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, the issuer must certify its eligibility to receive the adjustment to the payment card networks in which it participates. The average debit card transaction is valued at $38, according to the Federal Reserve. When combined with the maximum permissible interchange fee under the new rules, an issuer eligible for the fraud-prevention adjustment could receive an interchange fee of approximately 24 cents for the average debit card transaction. The limits on debit card interchange fees and the fraud-prevention adjustment are effective on October 1, 2011. Comments on the interim final rule are due by September 30, 2011.
Nutter Notes: Under the Dodd-Frank Act, issuers that have assets of less than $10 billion are exempt from the debit card interchange fee limits. To assist payment card networks in determining which issuers are subject to the debit card interchange fee limits and which are exempt, the Federal Reserve plans to publish by mid-July and annually thereafter lists of institutions that are above and below the small issuer exemption asset threshold. Also, the Federal Reserve plans to annually survey the networks and publish a list of the average interchange transaction fees each network provides to its covered and exempt issuers. The final rule also prohibits network exclusivity arrangements and routing restrictions. The rule 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 an electronic debit transaction over any network that the issuer has enabled to process them. The merchant routing provisions are effective on October 1, 2011.