Fed Clarifies Basis for Debit Interchange Fees

The Federal Reserve today clarified the way it treats transaction monitoring costs when it sets the debit card interchange cap. The Fed’s statement came in response to the D.C. Circuit Court of Appeals ruling upholding the Fed’s interchange rule while calling for more clarity on this specific point.

The Fed said that transaction monitoring systems, such as neural networks and fraud-risk scoring, are “integral” to an issuer’s decision to authorize specific transactions. “The board concluded that it should consider the costs of all activities that are integral to authorization, even if those costs are also incurred for the dual purpose of helping to prevent fraud,” the Fed said.