The American Bankers Association and five other financial trade groups yesterday urged the Federal Reserve to withdraw its proposal to expand the Durbin Amendment’s implementing rule (Regulation II), unless the Fed fixes key legal and technical deficiencies. Earlier this year, the Fed proposed to mandate that banks of all sizes enable two unaffiliated payment debit card networks and accept “PIN-less” transactions for internet purchases. In the letter, the financial groups warned that this rule would become a costly and complicated compliance burden, particularly for smaller card issuers, and would result in $27 billion in lost revenue by 2031.
“At a time when they are rightly focused on doing everything they can to support the economic recovery, our members did not anticipate a new government mandate that would require us to undertake costly, time-consuming, inefficient and unnecessary efforts to change our core network infrastructure,” the groups wrote. “The proposal is particularly surprising given that the primary beneficiaries of the board’s action would not be small businesses but instead large multinational retailers that have experienced double-digit profitability increases during the pandemic.”
The groups noted that while the Fed’s proposal was presented as a “clarification,” it would materially change the compliance obligations associated with Reg II, and accordingly, the agency should provide the public with impact analyses on how the changes would affect—among others—community financial institutions, competition and low-income bank customers. Since the proposal did not contain these analyses or sufficient implementation detail, the groups state that the current proposal does not comply with administrative law and is “void for vagueness.”
Should the Fed decide to move forward with the proposal, the groups recommended several significant changes. These include: the removal of the requirement for issuers to “enable” multiple networks on their cards and a return to the original language that issuers should “allow” multiple networks on their cards; the specification of the exact transaction types that must be capable of being routed on multiple networks; and the establishment of a four-year timeframe for issuers to comply with the rule. In contrast, retailer groups have asked the Fed to immediately enforce the proposal’s provisions.