WASHINGTON -- The Federal Reserve Board has published a proposed rule establishing debit card interchange fee standards and prohibiting network exclusivity arrangements and routing restrictions. The Fed's proposal would implement the debit card fee and routing provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (HR 4173), passed earlier this year.
Debit card interchange fees are established by payment card networks, and paid by merchants to card issuers for each transaction. The Federal Reserve is requesting comment on two alternative interchange fee standards that would apply to all covered issuers (those which have assets of $10 billion or more).
The first proposal is for a fee based on each issuer's costs, with a "safe harbor" and a cap (initially set at 7¢ and 12¢ a transaction, respectively). The second would implement a standalone cap, again set initially at 12¢ per transaction.
The Fed also is requesting comment on potential frameworks for adjusting the interchange fees to accommodate issuer costs related to fraud protection.
The Fed reports that, if it adopts either of these proposed standards in the final rule, the maximum allowable interchange fee assessed by covered card issuers for debit transactions would be more than 70% lower than the 2009 average.
The proposed rule also would prohibit all issuers and networks from restricting the number of networks over which debit card transactions may be processed. The Fed, again, is requesting comment on two alternative approaches.
One would require at least two unaffiliated networks per debit card. The other would require at least two unaffiliated networks per debit card for each type of cardholder authorization method, such as signature or PIN. Under either alternative, the issuers and networks would be prohibited from restricting a merchant's ability to direct the routing of debit card transactions over any network that the issuer enabled to process them.
Comments on the proposal are due by Feb. 22, 2011. The rules, if adopted, will take effect on July 21, 2011. The notice of proposed rulemaking is posted here.