NACS Urges Fed to Preserve and Strengthen Debit Interchange Rules

NACS commented to the Federal Reserve that by lowering retailers’ costs of accepting debit transactions, small businesses have been able to offer consumers lower prices.

March 24, 2016

ALEXANDRIA, Va. – This week, NACS urged the Board of Governors of the Federal Reserve System (Fed) to preserve and strengthen debit interchange rules as the Fed conducts a review of its regulations as required by the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA).

Specifically, NACS focused on Regulation II (Reg. II), which sets the standards for assessing whether debit card interchange fees are reasonable and proportional to the transaction costs incurred by the debit card issuer, and were issued pursuant to the Durbin Amendment in the Dodd–Frank Wall Street Reform and Consumer Protection Act. For larger financial institutions (i.e., banks with more than $10 billion in assets), Reg. II essentially capped the debit interchange fee that can be charged for each transaction.

“While debit fees should have been reduced even further than they have been to date,” NACS states that Reg. II has ultimately been a “net positive” since going into effect in 2011. “By lowering retailers’ costs of accepting debit transactions, small businesses have been able to pass on savings to consumers in the form of lower prices.”

At least once every 10 years, federal banking agencies are required by EGRPRA to conduct a review of all regulations in order to identify outdated or otherwise unnecessary regulatory requirements imposed on insured depository institutions. As part of this review, the Fed solicited public comments from interested stakeholders.

NACS responded to this request for public comment and outlines the benefits of Reg. II to the payment system, retailers, consumers and financial institutions. Countering the expected arguments from financial institutions against Reg. II, NACS outlined how “Regulation II is not unduly burdensome on financial institutions,” but is, in fact, a benefit to them—it has incentivized greater transaction efficiency and allowed small banks to grow their market share. Rather than weakening Reg. II as it undertakes its regulatory review under EGRPRA, NACS urged the Fed to “reduce the debit interchange fee standard in order to further extend the beneficial impact of the regulation.”

The Fed will now review all public comments before deciding whether further action is appropriate with respect to any regulation, including Reg. II. The Fed is also expected to undertake a separate review of Reg. II later this year.

Read NACS’s comments here.