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Fed announces Regulation II final rule
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. NAFCU previously wrote to the Fed, urging the agency to withdraw the modification, stating that that this change will produce a negative impact on credit unions.
If debit card issuers do not currently have this capability on their debit cards, they will need to reissue all debit cards by July 1, 2023, a huge undertaking especially for smaller institutions. This rule will require issuers to enable one single-message and one dual-message network; enabling a single-message network for CNP transactions would ultimately lead to a higher risk of fraud, as credit unions may not trust these networks to handle increased risk of fraud.
Unfortunately, merchants will more than likely opt for cheaper, untested networks, taking away banks and credit unions’ pool of resources to protect consumers and their data. In addition to the loss of interchange revenue, institutions would incur additional compliance costs, costs associated with mass re-issuance of debit cards, and increased fraud protection and security costs to combat less secure networks.
While the final rule does not modify requirements concerning interchange fees, any reopening of Regulation II and the Durbin Amendment extracts value from debit-card transactions. The NAFCU-opposed Credit Card Competition Act (CCCA) seeks to do just that. The bill, which has now been introduced in both Chambers and is attempting to slip into the larger National Defense Authorization Act (NDAA), would lead to consumers losing autonomy when choosing credit cards.
The CCCA will only line the pockets of big box retailers and in no way pass along savings to consumers in lower costs. It will instead impose a “back-door price control on credit card interchange feel…[and] unwillingly lower credit unions’ defenses when safeguarding consumer transactions and cause them to spend more money to maintain those necessary programs,” said NAFCU President and CEO Dan Berger.
NAFCU will continue to advocate against efforts that would undermine credit unions' interchange income and limit their ability to offer their 133 million members affordable products and services.