Fed announces proposed changes to debit card standards under the Durbin Amendment for e-commerce transactions

The Durbin Amendment (officially known as Section 920 of the Electronic Fund Transfer Act) is part of the 2010 Dodd-Frank Act which limited the fees merchants had to pay banks with more than $10 billion in assets (referred to as interchange fees) when customers used debit cards to make purchases. Designed to give merchants a choice of networks over which a debit card transaction may be routed, the Durbin Amendment requires issuers to enable at least two unaffiliated debit access networks.

In the first substantive proposed rulemaking for the Durbin Amendment in over five years, the Federal Reserve announced Friday, May 7, that it will expand the requirement that issuers enable two networks on debit to apply to the card-not-present environment. The change is designed to ensure that merchants will have at least two unaffiliated networks from which to choose in accepting cards online or by phone.

When the Federal Reserve initially adopted Regulation II, the rules implementing the Durbin Amendment, “the market had not developed solutions to broadly support multiple networks over which merchants could choose to route card-not-present transactions.” The Federal Reserve found that in the decade since implementation, card-not-present debit card transactions – which include online, e-commerce, telephone, and mail-order transactions – have become an increasing portion of all debit card transactions. However, market forces have not driven issuers and their network partners to enable multiple networks for such transactions. The Federal Reserve is therefore proposing the amendment to address this inconsistency with the requirements of the Durbin Amendment so that merchants will have a choice for routing transactions.

The proposed rule will address this by defining card-not-present transactions as a “particular type of transaction” for which two unaffiliated payment card networks must be available.

The proposed revisions also clarifies that it is the responsibility of the debit card issuer to ensure at least two unaffiliated networks have in fact been enabled. The issuer satisfies Regulation II’s prohibition on network exclusivity only if it has enabled at least two unaffiliated payment card networks to process electronic debit transactions. This change is not intended to be a substantive revision – rather it is intended to specifically identify the issuer as the party bearing responsibility for complying with this requirement.

The proposal leaves unchanged the amount of interchange fee that issuers and network may charge for debit card transactions.

Comments will be due 60 days after the date of publication in the Federal Register.