New Debit Card and Interchange Routing Guidance for Credit Unions

By Andrew C. Voorhees, Esq.

Section 920 of the Electronic Fund Transfer Act (EFTA) contains several provisions related to debit cards and electronic debit transactions (see 15 U.S.C. 1693o-2).  Specifically, Section 920 set a debit interchange fee cap for “large issuers” at 21 cents. 

Section 920 of the EFTA also directs the Board to prohibit issuers and payment card networks from restricting the number of payment card networks over which an electronic debit transaction may be processed to one network or two affiliated networks.  In addition, it directs the Board to prohibit issuers and networks from inhibiting the ability of a merchant to direct the routing of an electronic debit transaction to any network that may process the transaction. 

While the debit interchange fee cap applies to only “large issuers”, i.e. card issuers with over $10 billion in assets, the routing and exclusivity rules apply to all debit card issuers regardless of asset size.  Credit unions typically have less then $10 billion in assets, which makes them exempt from the fee cap.  However, credit unions are still subject to the routing and exclusivity rules of Section 920.

On September 13, 2011, the Federal Reserve Board released Regulation II (12 CFR 235), which is a compliance guidieline for debit card interchange fees and routing.  These guidelines are targeted to credit unions and other “small entities” and assist with meeting the routing and exclusivity requirements that apply to all debit card issuers. 

Regulation II is comprised of fourteen (14) compliance questions and related answers to provide guidance to credit unions and other small entities.  The 14 questions/topics found in Regulation II are:

1. What does section 920 of the Electronic Fund Transfer Act require?
2. What does the rule require for issuers subject to the interchange fee standard?
3. Which issuers are not subject to the interchange fee standards?
4. Which fees are not subject to the Board’s standards?
5. When do the interchange fee standards take effect?
6. How many payment card networks must be enabled on each debit card?
7. Which issuers must enable at least two unaffiliated networks on each debit card?
8. What types of payment card networks may an issuer enable to satisfy the two unaffiliated networks requirement.
9. How does an issuer know whether a payment card network is eligible to be one of the unaffiliated networks on a debit card?
10. When must an issuer comply with the prohibition on network exclusivity?
11. May payment card networks or card issuers place limitations on debit card transactions?
12. When must issuers and networks stop inhibiting merchant routing choice?
13. Is there more guidance on the provisions of Regulation II?
14. Whom should you contact if you have further questions?

The routing provision of Regulation II went into effect October 1, 2011.  The exclusivity provision will go into effect on April 1, 2012.  The guide found in Regulation II will be of assistance to credit unions and other entities in ensuring compliance with Section 920 of the EFTA. 

Andrew Voorhees is an associate in Commercial Collections based in the Cleveland office of Weltman, Weinberg & Reis Co., LPA. He can be reached at 216.685.1050 or avoorhees@weltman.com.