ABA Slams Fed's Proposal to Re-Open Durbin Amendment Rulemaking

Amid substantial growth in online purchases in recent years, the Federal Reserve last Friday reopened its rule on the Durbin Amendment. Specifically, the Fed issued a proposal that would amend Regulation II, which implements Durbin, to apply the requirement that debit card transactions be able to be processed on at least two unaffiliated payment card networks—for example, a PIN debit and a signature debit network—to card-not-present transactions, which have grown from 10% of debit purchases in 2009 to 23% in 2019.

When the Fed first issued Reg II, “the market had not developed solutions to broadly support multiple networks over which merchants could choose to route [CNP] transactions,” the Fed said, noting that technology has since evolved to address these issues. “Despite these developments, and in contrast to the routing choice that currently exists for card-present transactions, merchants are often not able to choose from at least two unaffiliated networks when routing card-not-present transactions, according to data collected by the Board and information from industry participants,” the Fed said.

However, ABA and several trade associations last Friday warned that revisiting the “flawed from the beginning” Durbin Amendment would make it harder for banks to deliver low transaction prices to acquirers and consumers.

“The Fed's decision to revisit Reg II risks causing even further consumer harm,” the groups said. “The Fed's own study of debit card transactions, both in person and online, shows that merchants and consumers are increasingly benefitting from significant investments in innovation and fraud detection embedded in the nation's payment rails today. By reopening the rules surrounding debit card transactions, the Fed could put the convenience, safety and security that Americans have come to expect when they use their debit card at risk. We will vigorously oppose any attempt to undermine the payments system at the expense of consumers.”

The proposal would also clarify that the debit card issuer is responsible for ensuring at least two unaffiliated networks have been enabled and would standardize and clarify certain terms and phrases in the Fed’s Reg II commentary. Comments are due 60 days after the rule is published in the Federal Register. 

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