Fed finalizes rule expanding Durbin routing requirements to card-not-present transactions

The Federal Reserve today finalized a controversial, ABA-opposed rule expanding Regulation II, the implementing regulation for the Durbin Amendment. The new rule extends the mandate that debit card transactions be processed on at least two unaffiliated payment card networks—for example, a PIN debit and a signature debit network—to card-not-present transactions. The final rule also states that the debit card issuer is responsible for ensuring at least two unaffiliated networks have been enabled and standardized, and specifies certain terms and phrases in the Fed’s Reg II commentary.

“We are deeply disappointed in the Federal Reserve’s decision to issue a final rule on changes to Reg II without resolving multiple flaws in the proposal identified by the more than 1,700 community financial institutions who offered their comments,” ABA President and CEO Rob Nichols said. “If ultimately implemented, this rule would amplify the damage of the flawed Durbin Amendment, which never delivered on its promise to lower retail prices for consumers. We will continue to review all aspects of this final rule and consult with our members on our options.”

The final rule is substantially similar to the original proposal, which ABA and other bank and credit union trade groups vigorously opposed after it was issued in the spring of 2021. ABA and other groups objected, noting that the Fed’s Reg II update would impose costly and complex compliance burdens, particularly for smaller card issuers—and that the Fed’s so-called “clarification” would materially change the compliance obligations associated with Reg II.

In approving the final rule, the Fed Board of Governors declined to adopt ABA-recommended changes to improve the proposal. Federal Reserve Governor Michelle Bowman was the only governor to vote against issuing the final rule. “During the public comment process, community banks raised substantial concerns with the proposal,” Bowman said. “Although the board has attempted to identify the likely effects of the proposed rule based on available information, I believe that significant questions remain about how the rule will affect banks, and particularly community banks, with respect to both fraud and the cost of compliance. Given this continued uncertainty, I do not support the final rule.”