The American Bankers Association and eight financial sector associations are urging the Federal Reserve to withdraw a two-year-old proposal to lower the cap on debit card interchange fees, pointing to conflicting court rulings on the regulation it seeks to amend and the age of the data used to calculate the cap.
The Fed in 2023 proposed revising Regulation II to lower the cap from its current rate of 21 cents and .05% of the transaction, plus a one-cent fraud adjustment, to 14.4 cents and .04% per transaction and a 1.3 cents fraud-prevention adjustment, which originally was to take effect on June 30 of this year. It also proposed to update the cap every other year going forward by linking it to data from the board’s biennial survey of large debit card issuers.
Since then, two district courts have reached different conclusions in separate lawsuits on the legality of the method that the Fed uses to calculate Reg II fees. Both decisions have been appealed. In a joint letter, the associations noted that the Fed board has indicated that it does not intend to finalize the proposed rule until there is legal certainty on Reg II implementation.
“Rather than leaving the debit card market in a state of uncertainty for the foreseeable future while waiting for the resolution of these ongoing court challenges, the board can provide greater certainty to debit card issuers, payment card networks, and merchants alike by withdrawing the 2023 proposed rule,” they said.
The groups also noted that the proposal used data from 2021 in its fee calculations, which no longer reflects the current market. They instead asked the Fed to publish data from its more recent 2023 survey of the market.
“[T]he debit card market has undergone substantial change since 2021, including revisions to the payment card network rules designed to shift fraud losses from merchants to card issuers, rapid growth in contactless and mobile wallet usage, and the implementation of the board’s 2022 amendments to Regulation II concerning card-not-present transactions,” they said.
