Implementing the Durbin Amendment: The Proposed Rule on Debit Network Interchange Fees and Rules
By Stanton R. Koppel
The Signed into law July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act or the Act) required implementation of almost all of its provisions through regulations to be promulgated by various agencies over the ensuing 18 months. As the agencies work through the administrative process to craft these implementing regulations, the affected providers of financial services and their customers are seeing the anticipated impacts become more concrete, while through this process they are afforded an opportunity to participate in shaping the regulatory environment that will affect them immediately and well into the future. Stakeholders participation, by submitting comments directly to the Board of Governors of the Federal Reserve System (the Board) or by working with trade groups to do so, provides an important means for achieving legislative and regulatory objectives without undue disruption of markets and services.
The so-called Durbin Amendment, entitled Reasonable Fees and Rules for Payment Card Transaction, added Section 1075 to the Act. It requires the Board to prescribe standards for reasonable interchange fees payable to certain debit card issuers in connection with debit card purchases and to limit certain payment network rules and practices that restrict merchants ability to prescribe the processing routing of debit transactions to the issuer for settlement. The Board has responded by publishing a detailed proposed rule with accompanying explanation. The bottom line is that for covered transactions, the proposed maximum interchange fee initially will be 12 cents. This article outlines the Notice of Proposed Rulemaking issued by the Board on December 16, 2010 (the Proposed Rule). The regulation would establish a new Federal Reserve Regulation II (Reg II).
The Act sets a deadline of nine months from the date of enactment for adoption of final regulations implementing the reasonable fee and fraud control adjustments. This deadline expires on April 21, 2011. However, the fee regulation provisions of EFTA Section 920 take effect on July 21, 2011. The Board is proposing effective dates for rules implementing the prohibition of routing restrictions to take effect either October 1, 2011 or January 1, 2013, depending on which of the proposed alternative proposals for network rules is adopted. Comments on the Proposed Rule must be submitted to the Board by February 22, 2011.