You can find the original commentary published on Forbes here. In reality, industry advocates have used the Feds comment window to revisit broader grievances in the longstanding interchange wars. The American Bankers Association and five other financial trade groups yesterday urged the Federal Reserve to withdraw its proposal to expand the Durbin Amendment's implementing rule (Regulation II), unless the Fed fixes key legal and technical deficiencies. For more information visit Issuers will need to work with their issuer processors to devise a work-around if such capabilities are not available with the second routing channel. While the Fed positioned its query as a non-substantive clarification, many of the 453 comments submitted so far express a belief that the proposal, if enacted, would have a significant impact on issuers. Part 235), unless it is revised materially in the manner recommended herein. Additionally, Akin mentioned that due to the fundamental differences between the modification to Regulation II and its current requirements, the costs associated with the proposed rule would be impractical and damaging to undertake for many credit unions. The Durbin Amendment settled the debit-card dispute by taking the side of the retail trade associations against large banks. 235.9(c). With Visa and Mastercard processing more than 80% of U.S. credit card charges, the bills stated intent is to promote competition in the space. Part 235), unless it is revised materially in the manner recommended herein. American Bankers Association The change was limited in scope; however, it is explicitly noted that the Board will continue to review the regulation in light of the most recent data collected by the Board and may propose additional revisions in the future. Read our post, The Latest Evolution in the Battle to Regulate Payments, for more on upcoming regulatory changes. 30 May 2021 by Jeremy T. Rosenblum Ballard Spahr LLP The Fed's final rule implementing the Durbin Amendment (Regulation II) went into effect in October 2011. 1693o-2, that requires the Federal Reserve to limit fees charged to retailers for debit card processing. The Fed issued the proposal to make changes to Regulation II which covers debit card interchange fees and network routing exclusivity in May. BAI gives financial services leaders the confidence to make smart business decisions, every day. Federal Reserve Governor Bowman voted against the rule stating: During the public comment process, community banks raised substantial concerns with the proposal. March 3, 2023 by Chuck Fagan, PSCU. Regulations, Strategic Resource Management, Inc. All rights reserved. Credit Union National Association is the most influential financial services trade association and the only national association that advocates on behalf of all of America's credit unions. "NAFCU members also face an increased likelihood of fraud in transactions with entities that are not subject to the same rigorous oversight and supervision as credit unions and other federally examined institutions," noted Akin. The laws impacts have been most pronounced for those consumers in need of feature-rich, low-cost basic banking services and that these social costs are not captured in the relevant statistics, the letter reads. Durbin 2.0 would mandate significant changes for financial institutions, but these changes are made more manageable with forward planning. Impacted issuers should pay close attention to potential financial (2023 budget), contractual, operational, and technology implications of this new rule. Navigate Fed finalizes rule expanding Durbin routing requirements to card-not-present transactions on October 3, 2022 Newsbytes, Payments, Policy The Federal Reserve today finalized a controversial, ABA-opposed rule expanding Regulation II, the implementing regulation for the Durbin Amendment. Despite the Feds stated desire for a basic clarification of Durbins requirements, the wheels are in motion for regulatory change. Further inquiries may be made by emailing Myron at, Cryptocurrency for Banks and Credit Unions. The Durbin Amendment settled the debit-card dispute by taking the side of the retail trade associations against large banks. So its good that these disputes are regularly settled in federal court. View a list of experts who can speak at your upcoming event a free benefit of your ABA membership. Economic and CU Monitor (Special Topic: Fraud) - June 2023. Many credit unions are in need of an improved onboarding process for their members as current processes are time-consuming, manual and lead to losing potential members. American Bankers Association President and CEO Rob Nichols said, We are deeply disappointed in the Federal Reserves decision to issue a final rule on changes to Reg II without resolving multiple flaws in the proposal identified by the more than 1,700 community financial institutions who offered their comments. The Durbin Amendment explained Crafted by Senator Dick Durbin (D-ill), the Durbin Amendment had two major provisions. Regulation II (12 C.F.R. The most concrete evidence is the Feds May request-for-comment on regulations for debit routing of online transactions. The limited data collected by the Board showed a decrease of over 50% in processing fees from the implementation of Reg II; however, interchange has not been adjusted since the regulation went into effect. In this area, it did its duty a long time agoby writing the nations anti-trust laws. PDF Final Text of Durbin Amendment - Legal Solutions Blog The lists have been generated from the set of institutions in . Using analytics to mitigate risk during a recession. Akin explained the change would create a de facto technology mandate that would drive most transactions across rails and with authentication methods which credit unions may judge to be inferior and not best-in-class. Credit Union Times Magazine Issue Gallery, wrote to the Federal Reserve Board of Governors, NCUAs MDI Report to Congress Shows Strong Growth. Durbin Amendment Definition - Investopedia In the event that the Board determines to proceed with its rulemaking, we respectfully request that the Board revise the Proposal in the manner set forth herein. The final rule does not directly address interchange for debit card transactions. Are Congressional Republicans About To Greenlight a CBDC? Preparing for Regulation II. With margins severely curtailed, issuers cut card rewards programs and the estimated number of unbanked Americans increased by about 1 million. The transaction must take a single path because, as of today, the specific bank identification number (BIN) assigned to the issuer is typically tied very closely to a specific network. Fed finalizes rule expanding Durbin routing requirements to card-not For financial institutions, this can be a heavy task with a number of factors to consider and incorporate. On October 3, 2022, the Federal Reserve finalized a rule expanding Regulation II (Debit Card Interchange Fees and Routing), the implementing regulation for the Durbin Amendment. The Fed is correct in its commentary that when Reg II was finalized, it allowed issuers about nine months to comply. The Durbin Amendment allows the Federal Reserve to consider the authorization, clearance, and settlement costs of each transaction when setting the interchange fee. PDF United States of America Before the Federal Trade Commission Benchmarking resources to help you better understand your organizations relative performance. The Fed retained the approach that allows issuers to rely on network rules or policies in determining whether the networks enabled by an issuer may be used to satisfy the prohibition on network exclusivity. Congress should never have passed the Durbin Amendment. Topics: The letter was sent in response to the Fed's recent proposal to re-open Regulation II, which covers debit card interchange fees and routing. At the same time, the number of MDI credit unions dropped between 2021 and 2022, the agency reports. Of the three branches of the U.S. government, the judicial branch not Congress was set up for exactly this purpose. Multiple card personalization validation (CPV) support: Supporting two payment networks on a single card will require CPV certifications to be performed twice and multiple card personalization profiles to be stored for each network. Repeal The Durbin Amendment: Restore The Rule Of Law Supporters of the Durbin Amendment, which include retail trade groups like the Merchant . A customer issued a card by a bank transacts at a merchant, and the merchants acquirer or bank routes the transaction via a network to an issuer processor that processes and authorizes the transaction on behalf of the cardholders bank. Especially for the areas of the dual networks and the routing of the networks, some financial institutions are having a hard time figuring out what is needed and where to go. Request academic re-use from This would need to be extended to multiple networks. Access to other award-winning ALM websites including Law.com and GlobeSt.com. In fact, theres an excellent chance the retailers would already be in court over debit-card interchange fees if not for something called the Durbin Amendment. All Rights Reserved. Card Networks, Download this white paper and learn how embracing a new model of member centricity can unlock new member value and growth. Mastercard's Illegal Tactics Support for settlements across multiple networks: Most issuer processors today support settlements across a single network only. If ultimately implemented, this rule would amplify the damage of the flawed Durbin Amendment, which never delivered on its promise to lower retail prices for consumers. Unlike large issuers who are already subject to interchange restrictions, smaller institutions are going to bear the direct brunt of this regulation. The rule goes into effect on July 1, 2023. , for more on upcoming regulatory changes. Podcast: Banking-as-a-service business models under pressure? debit card issuers, Strategic Resource Management, Inc. All rights reserved. This article explores how AI makes the auto lending process more inclusive and accurate for credit unions, but why it cant and shouldnt become a lenders sole solution. Fortunately for all sides, Congress long agoestablished the framework for anti-trust law to deal with exactly these types of disputes. clarify the responsibility of the issuer to enable at least two unaffiliated network. In percentage terms, interchange rates remain lower for every major debit category compared to a decade ago. It requires debit card issuers to enable two unaffiliated networks across all geographies, merchants, and particular transaction types (specifying that card-not-present is a particular type of transaction). Access to other award-winning ALM websites including TreasuryandRisk.com and Law.com. This one-hour webinar provides an overview of the final interchange regulations under the Durbin Amendment of the Dodd-Frank Act that went into effect October 1, 2011, changing the rules for interchange transaction fees. NCUA Bans Three Former Employees, Including Two CEOs, 8 Credit Unions & 3 Service Providers Announce Career Moves, America First CU Lands Naming Rights Deal, TruStage, Labor Union Blame Each Other for Stalled Contract Negotiations. The Federal Reserve on Monday issued a final rule on Regulation II -- which covers debit card interchange fees and network routing exclusivity - requiring all debit card issuers to enable and allow merchants to choose from at least two unaffiliated networks for card-not-present (CNP) transactions, such as online purchases. Based on a recent payments study from the Fed, 95% of CNP transactions are dual-message. specify that the prohibition on network exclusivity applies to card-not-present debit card transactions, 2.) Earlier this year, the Fed proposed to mandate that banks of all sizes enable two unaffiliated payment debit card networks and accept PIN-less transactions for internet purchases. During this shift, retailers lodged the same sorts of complaints regardingdebit-card fees, so it wouldnt be too strange to see this battle end up in court too. We work tirelessly to protect your best interests in Washington and all 50 states. The American Bankers Association and five other financial trade groups yesterday urged the Federal Reserve to withdraw its proposal to expand the Durbin Amendments implementing rule (Regulation II), unless the Fed fixes key legal and technical deficiencies. Multiple authorization processing rule support: Each network processes a transaction uniquely with a specific set of rules and configurations. regulation II, On October 3, 2022, the Federal Reserve finalized a rule expanding Regulation II (Debit Card Interchange Fees and Routing), the implementing regulation for the Durbin Amendment. Learn how one credit union was able to quickly implement a solution that satisfies their compliance checks while verifying and approving customer submissions in seconds. The Durbin Amendmentalong with its implementing rule, Regulation IIalso bars payment card networks from inhibiting merchants from using other networks. It is difficult to understand why the Fed would take such an action that could be so damaging for community banking institutions. 1333 New Hampshire Ave NW PDF Regulation of Debit Interchange Fees - Federation of American Scientists Durbin amendment - Wikipedia Fed Invites Public Comment on Proposed Changes to Durbin Amendment Re: Debit Card Interchange Fees and Routing (Docket No. The Federal Trade Commission is responsible for enforcement with respect to other entities not covered by the above regulators. AI as an Extension of the Lending Process, Not a Replacement. In comparison, card-present transactions are 50/50 dual and single-message. Extending The Durbin Amendment To The Credit-Card Market Will - Forbes The Fed made it clear that it believes increased competition would benefit merchants by encouraging networks to develop innovative solutions to address these fraud concerns. The Fed received more than 2,750 comments, and it has taken nearly a year since the comment period was completed to receive a final ruling. In addition, all issuers should be prepared that this is just the beginning. Regulation II (Debit Card Interchange Fees and Routing) establishes standards for assessing whether a debit card interchange fee received by a debit card issuer for an electronic debit transaction is reasonable and proportional to the costs incurred by the issuer with respect to the transaction. The core provisions of U.S. federal anti-trust law arefound in the 1890 Sherman Act and the 1914 Clayton Act. See the banking industry group February 1, 2022 letter to the Federal Reserve on behalf of the community banks. What the Durbin Amendment Means for Debit Cards? | Justt.ai Should this proposed legislation make it into law, there would be many significant implications. We did not anticipate a new mandate that would require us to undertake distracting, expensive, time-consuming efforts to change our core network infrastructure. Issuers should also actively engage their government relations teams and prioritize this issue locally and nationally while working with their associations. Since the proposal did not contain these analyses or sufficient implementation detail, the groups state that the current proposal does not comply with administrative law and is void for vagueness.. The Board of Governors of the Federal Reserve System (Federal Reserve) invited public comment on proposed changes to Regulation II, better known as the Durbin Amendment,. The bill, commonly called Durbin 2.0, requires that at least two unaffiliated networks must be . clarify the responsibility of the issuer to enable at least two unaffiliated networks to comply with the prohibition on network exclusivity, and 3.) The Washington, D.C.-based legislation was designed to level the credit card industry playing field. Operations, Providing credit unions with the best federal advocacy, education and compliance assistance in the industry, 2023 National Association of Federally-Insured Credit Unions, proposal to make changes to Regulation II, CECL Study: Alternatives, Impacts, Accuracy, and Complexity, NAFCU combats Fed proposed changes to interchange regulation, Macro Data Report - Gross Domestic Product (GDP). Washington, DC 20036 Trusted, Accurate & Relevant Online Training. Review of Monetary Policy Strategy, Tools, and Communications, Banking Applications & Legal Developments, Financial Stability Coordination & Actions, Financial Market Utilities & Infrastructures. Download the comment letter to read the full text. Sometimes the process drags on, and invariably one side loses, but the upside of the U.S. approach is that it provides beforehand a transparent legal framework and dispute resolution process. This was shocking given the relative prevalence of card-not-present fraud, and that fraud solutions for single-message transactions in an e-commerce environment are not as robust as their dual-message counterparts. Before the Durbin Amendment the fee was 1.190% + $0.10/. In an unsurprising development, the Fed noted that single-message networks (among other parties) uniformly supported the proposal. How Correspondent Services May Help to Combat Barriers to Member Services? The Durbin amendment, implemented by Regulation II, [1] is a provision of United States federal law, 15 U.S.C. Debit card transactionssurpassed credit card transactions for the first timemore than a decade ago, and theyvepretty much stayed in the lead. United States: Durbin Interchange Battles Resurface - Mondaq In October 2022, the Federal Reserve issued a final ruling on Regulation II (Durbin Amendment), which requires two unaffiliated . REASONABLE FEES AND RULES FOR PAYMENT CARD . standardize and explain the use of certain terminology. Senator Durbin has made it clear that this is his priority and is making aggressive moves to address both. We will continue to review all aspects of this final rule and consult with our members on our options.. 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The letter, signed by CUNA, NAFCU, the American Bankers Association, the Consumer Bankers Association, the Independent Community Bankers of America and the National Bankers Association, stated their opposition to any further variations to interchange fees as laid out in the Durbin Amendment. Although the Board has attempted to identify the likely effects of the proposed rule based on available information, I believe that significant questions remain about how the rule will affect banks, and particularly community banks, with respect to both fraud and the cost of compliance. The Durbin Amendment (also called Regulation II) was a key part of the new law. and prescribing regulations under this paragraph, the Board shall consider ''(I) the nature, type, and . Topics: a similar dual network requirement for credit issuers. The core provisions of U.S. federal anti-trust law are found in the . Exclusive discounts on ALM and CU Times events. October 04, 2022, Federal Reserve Bank and Branch Directors, Transcripts and other historical materials, Federal Reserve Balance Sheet Developments, Community & Regional Financial Institutions, Federal Reserve Supervision and Regulation Report, Federal Financial Institutions Examination Council (FFIEC), Securities Underwriting & Dealing Subsidiaries, Types of Financial System Vulnerabilities & Risks, Monitoring Risk Across the Financial System, Proactive Monitoring of Markets & Institutions, Responding to Financial System Emergencies, Regulation CC (Availability of Funds and Collection of Checks), Regulation II (Debit Card Interchange Fees and Routing), Regulation HH (Financial Market Utilities), Federal Reserve's Key Policies for the Provision of Financial Services, Sponsorship for Priority Telecommunication Services, Supervision & Oversight of Financial Market Infrastructures, International Standards for Financial Market Infrastructures, Payments System Policy Advisory Committee, Finance and Economics Discussion Series (FEDS), International Finance Discussion Papers (IFDP), Estimated Dynamic Optimization (EDO) Model, Aggregate Reserves of Depository Institutions and the Monetary Base - H.3, Assets and Liabilities of Commercial Banks in the U.S. - H.8, Assets and Liabilities of U.S.
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