Federal Reserve Board Survey of Small Debit Card Issuers

Background

Section 1075 of the Dodd-Frank Act instructed the Federal Reserve Board (“the Board”) to write regulations related to debit card interchange fees and network exclusivity and routing. The Board implemented the statutory provisions in Regulation II (Debit Card Interchange Fees and Routing, 12 CFR part 235).

Regulation II is comprised of two main parts. The first part establishes standards for the interchange fees that certain debit card issuers can receive for electronic debit transactions. This portion of the regulation reflects exemptions contained in the statute and does not apply to debit card issuers that have consolidated assets less than $10 billion, debit cards issued pursuant to government-administered payment programs, or certain general-use prepaid cards.

The second part of the regulation concerns network exclusivity arrangements and merchant routing restrictions. The network exclusivity prohibition in Regulation II requires an issuer to ensure that all of its debit cards (including general-use prepaid cards) are enabled to process electronic debit transactions over at least two unaffiliated payment card networks. For the issuers of most debit cards, this provision of Regulation II became effective April 1, 2012. The prohibition on merchant routing restrictions prohibits an issuer or payment card network from inhibiting the ability of a merchant to direct the routing of an electronic debit transaction over any network enabled on a debit card. This provision of Regulation II became effective October 1, 2011.

In contrast to the interchange fee standard, the Dodd-Frank Act does not include any exemptions from the second part of the regulation; consequently, all debit card issuers and debit cards are subject to the prohibitions on network exclusivity and merchant routing restrictions, regardless of whether those issuers or cards are exempt from the interchange fee standard.

Purpose of this Survey

The Board is requesting that your institution respond to this voluntary survey so that it can gather information about the experience of debit card issuers that are exempt from the interchange fee standard with respect to the network exclusivity provision of Regulation II. Prior to April 1, 2012, some of your institution's debit cards may already have been enabled to process electronic debit transactions over two unaffiliated payment card networks and, consequently, may already have been in compliance with this provision of the regulation. Other debit cards may not have been enabled for processing over two unaffiliated payment card networks, and your institution may have incurred costs in order to comply with the provision by April 1, 2012.

The survey requests information about the extent to which your institution needed to enable an additional network on its debit cards (excluding prepaid cards) to comply with the regulation. The survey further requests information about the costs of such adjustments to your institution's debit cards. Finally, the survey requests information about whether your cardholders have faced rejection or other discrimination with respect to the use of their debit cards at the point of sale because their cards are provided by an issuer that is exempt from the interchange fee standard.

Please respond to the survey by October 31, 2012.

Response Confidentiality and Burden

The Federal Reserve Board regards the individual organization information provided by each respondent in response to the questions about the size of the respondent’s card program, costs of compliance, and merchant discrimination as confidential (5 U.S.C. 552(b)(4)). The Board, however, may publish aggregate or summary information in a way that does not reveal your individual organization’s confidential information. If it should be determined subsequently that any information collected on this form must be released, the respondents will be notified.

Public reporting burden for this collection of information is estimated to be 2 hours per response, including the time to gather data in the form and to review instructions and complete the information collection. Send comments regarding this burden estimate to Secretary, Board of Governors of the Federal Reserve System, 20th and C Streets, N.W., Washington, D.C. 20551 or via email to [email protected]; and to the Office of Management and Budget, Paperwork Reduction Project (7100-0322), Washington, D.C. 20503. The Federal Reserve may not conduct or sponsor, and an organization (or a person) is not required to respond to, a collection of information unless it displays a currently valid OMB control number.