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Regulation II Expanded to Require Two Unaffiliated Networks on Card Not Present Transactions


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 final RULE is substantially similar to the proposed rule issued in 2021 and requires online (card not present) debit card transactions to be enabled for processing on at least two unaffiliated payment card networks. The final rule will be effective July 1. 2023.

Federal Reserve Governor Bowman voted against the rule stating: “During the public comment process, community banks raised substantial concerns with the proposal. 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. Given this continued uncertainty, I do not support the final rule.”

Community banks opposed the changes because online debit card transactions are the fastest growing transaction type and the cost to process these PIN debit transactions is more than double the interchange fee paid the banks . See the banking industry group February 1, 2022 letter to the Federal Reserve on behalf of the community banks. The banking industry groups also urged Congress to not expand the Durbin Amendment in a May 2, 2022 letter.

American Bankers Association President and CEO Rob Nichols said, “We are deeply disappointed in the Federal Reserve’s 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. 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. We will continue to review all aspects of this final rule and consult with our members on our options.”


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