Federal Reserve Protects Competitive Market for Retailers to Choose Debit Networks

by Sarah Grotta 0

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In the frenzied days leading up to and coming out of the recent U. S. presidential election, you may have missed an update posted to the Federal Reserve Board’s FAQ’s regarding Regulation II. The Fed posted a question it was posed regarding how debit transactions are routed and their response. This clarification as discussed in an article posted by NACS, gets at the heart of the matter of who has control over transactions; networks or merchants and what role do consumers play. As NACS commented:

Prior to debit reform taking effect in 2011, the dominant card networks (Visa and MasterCard) often paid banks that issue their debit cards an incentive for those banks to block competitive networks (such as Star, Pulse, NYCE, Shazam and others) from those cards. That often left retailers with no choice of network when transmitting debit information to complete payments. The Durbin Amendment to the Dodd-Frank Wall Street Reform Act, as one part of reforming debit fees, barred this practice. It said that the dominant networks and banks could not limit the number of networks available to handle a card’s transactions to fewer than two competitors. And, it said networks and banks could not do anything to “inhibit” merchants’ choice of which network to use.

The question and the Fed’s response can be found here. The Fed’s comments will have an impact on pending litigation and a material transaction routing for debit cards.

Overview by Sarah Grotta, Director, Debit Advisory Service at Mercator Advisory Group

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