Fed Finalizes Updates to Debit Card Transactions Rule

The Federal Reserve Board finalized revisions to the rule governing debit card transactions, which will become effective July 1, 2023.

The updates state that issuers should allow at least two payment card networks to process all debit card transactions, including online payments and other "card-not-present" transactions, the board said in a news release.

Since the board first issued the rule in July 2011, technology has evolved to address concerns such as the lack of solutions to broadly support multiple networks for card-not-present debit card transactions. The continued growth in online payments has exacerbated the issue.

Part of the Dodd-Frank Act, Regulation II governs debit card interchange fees and routing. The rule was meant to give merchants a way to control their expenses by offering shoppers a way to pick a low-cost routing option when making a purchase. Card issuers and networks argue that their costs are fair and necessary to support innovation and fraud detection for card payments. Based on the input received for the proposal, many debit card issuers, including most community financial institutions, are already compliant with the final rule.

The rule change has elicited a strong pushback from the financial services industry and from at least one member of the Fed Board of Governors, who contend the amendment to Regulation II goes beyond simply clarifying the statute and would constitute a significant burden on issuers.

Fed Gov. Michelle Bowman issued a dissenting opinion on the change, asserting that the Fed did not do enough to address the "substantial concerns" raised by community banks during the comment period. 

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Related: Fed Says Debit Issuers Must Enable At Least 2 Payment Networks; Retailers Hail Decision