Is 3. IFs on debit card transactions were capped in 2011 by the Durbin Amendment, which left credit cards unscathed. For purposes of determining whether an issuer is exempted under 235.5(a), however, the term issuer is limited to the entity that holds the account being debited. Electronic debit transactions made using a reloadable general-use prepaid card are not exempt from the interchange fee restrictions if the card is marketed or labeled as a gift card or gift certificate. Section 235.3 Reasonable and Proportional Interchange Transaction Fees, 3(b) Determining Reasonable and Proportional Fees. In addition, funds received by an issuer from a payment card network as a result of chargebacks, fines paid by merchants or acquirers for violations of network rules, or settlements or recoveries from merchants or acquirers to offset the costs of fraudulent transactions or a data security breach do not constitute incentives or payments made by a payment card network. Because the requirements of this subpart do not restrict or otherwise establish the amount of fees that a network may charge for its services, the increase in network fees charged to merchants or acquirers and decrease in fees charged to issuers is not a per se circumvention or evasion of the interchange transaction fee standards, but may warrant additional supervisory scrutiny to determine whether the facts and circumstances constitute circumvention or evasion. Surcharging General Why are merchants allowed to apply payment surcharges? An issuer's review of its policies and procedures must consider information from the issuer's own experience and that the issuer otherwise identified itself; information from payment card networks, law enforcement agencies, and fraud-monitoring groups in which the issuer participates; and supervisory guidance. (b) Acquirer means a person that contracts directly or indirectly with a merchant to provide settlement for the merchant's electronic debit transactions over a payment card network. ii. The commentary also provides examples to aid in understanding how a particular requirement is to work. SUMMARY: The Consumer Financial Protection Bureau (Bureau or CFPB) has issued Consumer Financial Protection Circular 2022-06, titled, Unanticipated Overdraft Fee Assessment Practices. Debit Card Processing Fees: 2023 Merchant Guide The Bureau of Consumer Financial Protection. An issuer need not develop fraud-prevention technologies itself to satisfy the standards in 235.4(b). Interchange transaction fees are not limited to those fees for which a payment card network sets the value. Practices to help determine whether a card is authentic and whether the user is authorized to use the card at the time of a transaction. Web 1030.11 is part of 12 CFR Part 1030 (Regulation DD). IRS Mandate (Section 6050W): Mandates the reporting of sales made with a credit or debit card to the IRS. (ii) The issuer, together with its affiliates, has assets of less than $10 billion as of the end of the calendar year preceding the date of the electronic debit transaction. Therefore, an issuer should consider whether its policies and procedures are effective for each method used to authenticate the card (e.g., a chip or a code embedded in the magnetic stripe) and the cardholder (e.g., a signature or a PIN), and for different sales channels (e.g., card-present and card-not-present). 6(a) Prohibition of Circumvention or Evasion. Other reimbursements could include payments made to issuers as a result of fines assessed to merchants for noncompliance with Payment Card Industry (PCI) Data Security Standards or other industry standards. Fed To Examine Debit CNP Routing Pressure Looms For The final rule will encourage competition between networks and incentivize them to improve their fraud-prevention capabilities. 4. 1. The eCFR is displayed with paragraphs split and indented to follow 2. iii. The following are examples of issuer or network practices that would inhibit a merchant's ability to direct the routing of an electronic debit transaction that are prohibited under 235.7(b): i. Section 235.7(a) does not prohibit an issuer from including an affiliated payment card network among the networks that may process an electronic debit transaction with respect to a particular debit card, as long as at least two of the networks that are enabled on the card are unaffiliated. Paragraph 4(b)(3) Review of and updates to policies and procedures. Issuers. 1. In addition, a program may be government-administered even if a Federal, State, or local government agency is not the source of funds for the program it administers. While an ACH operator processes transactions that debit an account and provides for interbank clearing and settlement of such transactions, a person does not use the ACH system to accept as a form of payment a brand of debit card. iii. Subsequent transactions. ii. ii. The condition with respect to ATM fees does not apply to cards that do not provide ATM access. As a result of this differential growth, card-not-present transactions comprised almost 23 percent of all debit card transactions in 2019, up from slightly less This is an automated process for 1. Paragraph 4(b)(2)(ii). When making this determination, the Board will consider all relevant factors, including the extent of asset growth of the issuer since December 31, 2019; the causes of such growth, including whether growth occurred as a result of mergers or acquisitions; whether such growth is likely to be temporary or permanent; whether the issuer has become involved in any additional activities since December 31, 2019; the asset size of any parent companies; and the type of assets held by the issuer. In response to public comments, the final rule also includes certain changes that make it easier for debit card issuers to determine whether they are in compliance with the final rule. 2. April 30, 2021 To: Board of Governors From: Staff1 Subject: Proposed Amendments to Regulation II (Debit Card Interchange Fees and Routing) to Clarify the When it comes to credit and debit card processing for lawyers and law firms, In some cases, a community bank or credit union may provide debit cards to its account holders through a BIN sponsor arrangement with a member institution. After the expiration of the time period, the cardholder's account is debited for the value of all transactions made using the card that have been submitted to the issuer for settlement during that time period. If an issuer qualifies for the exemption in paragraph (a)(1) in a particular calendar year, but, as of the end of that calendar year no longer qualifies for the exemption because at that time it, together with its affiliates, has assets of $10 billion or more, the issuer must begin complying with 235.3, 235.4, and 235.6 no later than July 1 of the succeeding calendar year. If the transaction posts to a line of credit, then the transaction is a credit transaction. The share of accounts that had opted in to ATM/POS debit card coverage at the end of 2011 varied (q) United States means the States, territories, and possessions of the United States, the District of Columbia, the Commonwealth of Puerto Rico, or any political subdivision of any of the foregoing. Virtual wallets. Application of rule regardless of form factor. (c) Enforcement authority of Federal Trade Commission. result, it may not include the most recent changes applied to the CFR. Application of small issuer, government-administered payment program, and reloadable card exemptions to payment card network restrictions. The exemption in 235.5(c) applies because policies and procedures reasonably designed to avoid marketing the general-purpose reloadable cards as gift cards or gift certificates are maintained. i. 1. Compensating an issuer. (2) An issuer's policies and procedures must address. 1. Under these facts, the web site has marketed all such products as gift cards or gift certificates, and the exemption in 235.5(c) does not apply to any products sold on the web site. The retailer does not affirmatively indicate or represent that gift cards are available, such as by displaying any signage or other indicia at the checkout lane suggesting the general availability of gift cards. Reloadable general-use prepaid cards sold prior to April 1, 2013 are not subject to paragraph (a) of this section unless and until they are reloaded, in which case the following compliance dates apply: (A) With respect to reloadable general-use prepaid cards sold and reloaded prior to April 1, 2013, the compliance date is May 1, 2013. A payment card network does not restrict a merchant's ability to route transactions over available payment card networks in violation of 235.7(b) by offering payments or other incentives to encourage the merchant to route electronic debit card transactions to the network for processing. ACTION: Consumer financial protection circular. For example, it is sufficient for an issuer to issue a debit card that operates on one signature-based card network and on one PIN-based card network, as long as the two card networks are not affiliated. Debit an account. 5. (2) Does not include transactions initiated at an ATM, including cash withdrawals and balance transfers initiated at an ATM. An entity routes information if it both directs and sends the information to an unaffiliated entity (or affiliated entity acting on behalf of the unaffiliated entity). (2) The terms used in paragraph (a)(1) of this section that are not defined in this part or otherwise defined in section 3(s) of the Federal Deposit Insurance Act (12 U.S.C. Real-time routing decision not required. 7. 1. Navigate by entering citations or phrases This could be one potential reason for the above-average rates seen in the U.S. In general. Although net compensation may be one form of circumvention or evasion prohibited under 235.6(a), it is not the only form. Form of payment. Is It Illegal To Charge A Fee For Using A Debit Card? A person may rely on lists published by the Board to determine whether an issuer, together with its affiliates, has assets of less than $10 billion as of the end of the calendar year preceding the date of the electronic debit transaction. An issuer may implement fraud-prevention technologies that have been developed by a third party that the issuer has determined are appropriate under its own policies and procedures. 5. As a result of this analysis, the issuer may decide to decline to authorize these transactions. (k) Issuer means any person that authorizes the use of a debit card to perform an electronic debit transaction. Distinction from acquirers. (1) In general. 1. Section 235.7(a) requires a debit card subject to the regulation to be enabled on at least two unaffiliated payment card networks. 6. An issuer should review its policies and procedures and their implementation more frequently than annually if the issuer determines that more frequent review is appropriate based on information obtained from monitoring its fraudulent electronic debit transactions, changes in the types or methods of fraud, or available methods of detecting and preventing fraudulent electronic debit transactions. Transaction Fees If the cap fits: IFR successes Electronic Fund Transfers FAQs - Consumer Financial Additional ATM access. (i) With respect to non-reloadable general-use prepaid cards, the compliance date is April 1, 2013. NRF | Retailers Say New Fed Debit Card Regulations Mean Whether the exclusion applies generally does not depend on the type of entity that makes the promotional message. (j) Interchange transaction fee means any fee established, charged, or received by a payment card network and paid by a merchant or an acquirer for the purpose of compensating an issuer for its involvement in an electronic debit transaction. 5. Five years since the IFR was introduced, the Commission has produced a report on its successes and the areas which require further work. June 29, 2021. An issuer or payment card network is prohibited from inhibiting a merchant's ability to route or direct an electronic debit transaction over any of the payment card networks that the issuer has enabled to process an electronic debit transaction for that particular debit card. Methods to secure debit card and cardholder data. Section 235.7 Limitations on Payment Card Restrictions. (a) Authority. An issuer should take steps reasonably designed to reduce the number and value of its fraudulent electronic debit transactions relative to its non-fraudulent electronic debit transactions. user convenience only and is not intended to alter agency intent Representing that a card can be used as a substitute for a checking, savings, or deposit account; B. Finding of circumvention or evasion. (See, however, comment 5(c)4.ii.). Prohibition on circumvention, evasion, and net compensation. That person may provide the card directly to the cardholder or indirectly by using a third party (such as a processor, or a telephone network or manufacturer) to provide the card, or other payment code or device, to the cardholder. Board BOARD OF GOVERNORS OF THE FEDERAL RESERVE (2) Permitted arrangements. (i) Methods to identify and prevent fraudulent electronic debit transactions; (ii) Monitoring of the volume and value of its fraudulent electronic debit transactions; (iii) Appropriate responses to suspicious electronic debit transactions in a manner designed to limit the costs to all parties from and prevent the occurrence of future fraudulent electronic debit transactions; (iv) Methods to secure debit card and cardholder data; and. Three-party systems. Examples of use by unauthorized persons include, but are not limited to, the following: i. 49 CFR 172.101 5(b) Exemption for Government-Administered Payment Programs. (o) Processor means a person that processes or routes electronic debit transactions for issuers, acquirers, or merchants. This regulation applies only to electronic debit transactions that are initiated at a merchant located in the United States. (l) Merchant means any person that accepts debit cards as payment. [76 FR 43466, July 20, 2011, as amended at 85 FR 77362, Dec. 2, 2020]. A general-use prepaid card is not reloadable merely because the issuer or processor is technically able to add functionality that would otherwise enable the general-use prepaid card to be reloaded. In general. 5. A sign stating Gift Cards appears prominently at the top of the display. An issuer or payment card network shall not, directly or through any agent, processor, or licensed member of the network, by contract, requirement, condition, penalty, or otherwise, inhibit the ability of any person that accepts or honors debit cards for payments to direct the routing of electronic debit transactions for processing over any payment card network that may process such transactions. Section 235.5(a)(2) permits payment card networks to rely on lists published by the Board to help determine eligibility for the small issuer exemption set forth in 235.5(a)(1). In this system, the bank or entity holding the cardholder's funds is the issuer. 1. An issuer is not eligible to receive or charge a fraud-prevention adjustment if the issuer is substantially non-compliant with the standards set forth in paragraph (b) of this section, as determined by the issuer or the appropriate agency under 235.9. Examples of prohibited merchant restrictions. If unaffiliated payment card networks become affiliated as a result of a merger or acquisition such that an issuer is no longer in compliance with paragraph (a) of this section, the issuer must add an unaffiliated payment card network through which electronic debit transactions on the relevant debit card may be processed no later than six months after the date on which the previously unaffiliated payment card networks consummate the affiliation. Web15 U.S.C. 3 However, the Rule does not apply to the payment of (1) Compliance with the requirements of this part shall be enforced under, (i) Section 8 of the Federal Deposit Insurance Act, by the appropriate Federal banking agency, as defined in section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. Requiring a specific payment card network based on the type of access device provided to the cardholder by the issuer. (1) Ownership, control, or power to vote 25 percent or more of the outstanding shares of any class of voting security of the company, directly or indirectly, or acting through one or more other persons; (2) Control in any manner over the election of a majority of the directors, trustees, or general partners (or individuals exercising similar functions) of the company; or. In evaluating the costs, an issuer should consider both initial implementation costs and ongoing costs of using the fraud-prevention method. i. This standard may be incorporated into an issuer's information security program, as required by Section 501(b) of the Gramm-Leach-Bliley Act. As a The regulation in this part, known as Regulation E, is issued by the Board of Governors of the Federal Reserve System pursuant to the Electronic Fund Transfer Act ( 15 U.S.C. A tribal government is considered a local government for purposes of this exemption. information or personal data. These steps should reduce the costs from fraudulent transactions to all parties, not merely the issuer. Organization and Purpose While the cardholder may receive the card directly from the program manager or at a retailer, the BIN sponsor authorizes the cardholder to use the card to perform electronic debit transactions that access the funds in the pooled account and the cardholder's relationship generally is with the BIN sponsor. Except as provided in 235.7, this part becomes effective and compliance is mandatory on October 1, 2011. An issuer complies with the requirements of paragraph (a) of this section only if each interchange transaction fee received or charged by the issuer for an electronic debit transaction is no more than the sum of. An ACH operator is not considered a payment card network for purposes of this part. (b) Exemption for government-administered programs. Choosing an item from The account debited could be, for example, the cardholder's asset account or the account that holds the funds used to settle prepaid card transactions. Consideration of payments or incentives provided by the network in net compensation determination. You are using an unsupported browser. 1. Each employee that has a debit card that can access the account is a cardholder. An issuer's policies and procedures must be designed to take effective steps to reduce both the occurrence of and costs to all parties from fraudulent electronic debit transactions. Store cards. Cash withdrawal at the point of sale. Branches and Agencies of Foreign Banks, Charge-Off and Delinquency Rates on Loans and Leases at Commercial Banks, Senior Loan Officer Opinion Survey on Bank Lending Practices, Structure and Share Data for the U.S. Offices of Foreign Banks, New Security Issues, State and Local Governments, Senior Credit Officer Opinion Survey on Dealer Financing Terms, Statistics Reported by Banks and Other Financial Firms in the United States, Structure and Share Data for U.S. Offices of Foreign Banks, Financial Accounts of the United States - Z.1, Household Debt Service and Financial Obligations Ratios, Survey of Household Economics and Decisionmaking, Industrial Production and Capacity Utilization - G.17, Factors Affecting Reserve Balances - H.4.1, Federal Reserve Community Development Resources. When the Board initially issued the rule in July 2011, the market had not developed solutions to broadly support multiple networks for card-not-present debit card transactions. 1. 6. The term electronic debit transaction includes the use of a card to debit an account. 4. However, the use of a card to purchase goods or services that debits the cardholder's account that is settled by means of a subsequent ACH debit initiated by the card issuer to the cardholder's account, as in the case of a decoupled debit card arrangement, involves the use of a debit card for purposes of this part. The term electronic debit transaction includes the use of a card as a form of payment that may be made in exchange for goods or services, as a charitable contribution, to satisfy an obligation (e.g., tax liability), or for other purposes. Title 12 was last amended 6/23/2023. 1. 5. (2) 5 basis points multiplied by the value of the transaction. An issuer must also assess its policies and procedures in light of changes in fraud types (e.g., the use of counterfeit cards, lost or stolen cards) and methods (e.g., common purchase patterns indicating possible fraudulent behavior), as well as changes in the available methods of detecting and preventing fraudulent electronic debit transactions (e.g., transaction monitoring, authentication methods) as part of its periodic review of its policies and procedures. Therefore, in certain circumstances, an issuer's policies and procedures may be effective notwithstanding a relative increase in the transactions that are fraudulent in a particular year. 3. EFTA section 920 is codified as 15 U.S.C. For example, a network-branded general purpose reloadable card would be marketed or labeled as a gift card or gift certificate if the issuer principally advertises the card as a less costly alternative to a bank account but promotes the card in a television, radio, newspaper, or Internet advertisement, or on signage as the perfect gift during the holiday season.
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