Fed should withdraw debit interchange cap proposal
In light of inconsistent rulings from federal courts, the Federal Reserve should withdraw its proposed Regulation II amendments to the debit card interchange fee cap, America’s Credit Unions and other trade organizations wrote the Fed Monday.
The Fed’s 2011 Regulation II rule caps debit card interchange fees, and the amendments proposed in 2023 would lower it further in favor of merchants whose historical tendency has been to pocket interchange savings rather than share any benefit with consumers. The Fed has indicated it would not finalize the rule until there is legal certainty, but the organizations encourage it to issue a notice of withdrawal to provide clarity to affected entities.
A North Dakota court ruled in August that the Fed exceeded its authority in its 2011 Fed interchange rule, while a Kentucky court issued a conflicting decision in September that the Fed’s debit interchange regulation is lawful and reasonable.
“Rather than leaving the debit card market in a state of uncertainty for the foreseeable future while waiting for the resolution of these ongoing court challenges, the Board can provide greater certainty to debit card issuers, payment card networks, and merchants alike by withdrawing the 2023 Proposed Rule,” the organizations wrote.
They add that the 2021 data upon which the 2023 proposed rule is based on “does not support informed decision making,” as the debit card market has undergone substantial change since 2021, including revisions to the payment card network rules, rapid growth in contactless and mobile wallet usage, and the implementation of the Fed’s 2022 amendments to Regulation II concerning card-not-present transactions. The organizations also request the Fed publish its calendar year 2023 survey, which would account for the recent changes.
America’s Credit Unions met with Fed Governor Stephen Miran on this issue last month, wrote a detailed letter to the Board of Governors on its harmful impacts, and will continue to advocate in support of the current interchange system.