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10.24 Fee Restrictions and Rules for Payment Card Transactions

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10.24 Fee Restrictions and Rules for Payment Card Transactions

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10.24.   Fee Restrictions and Rules for Payment Card Transactions.

            10.24.1.    Rules Regarding Interchange Fees for Electronic Debit Transactions.

The EFTA is amended to authorize the Fed to issue regulations regarding any interchange transaction fee that an issuer may receive or charge for an electronic debit transaction (a transaction in which a person uses a debit card).  The amount of any interchange transaction fee that an issuer may receive or charge with respect to an electronic debit transaction must be reasonable and proportional to the cost incurred by the issuer with respect to the transaction.  Regulations to establish standards to assess whether a charge is reasonable and proportional are to be issued in final form within 9 months of the date of enactment of the Act.  Regardless of whether rules are issued, the fee setting restrictions in the new law become effective 1-year after enactment of the Act.

 

Network fees are distinguished from interchange transaction fees, and are defined as those fees received by a network related to a debit transaction that are not interchange transaction fees.  The Fed has authority to issue rules on network fees, limited to ensuring that network fees are not used to compensate issuers for debit transactions or to otherwise circumvent interchange fee regulations.

 

The Fed will retain jurisdiction for drafting interchange regulations on an ongoing basis (despite the transfer of other rulemaking authority under EFTA to the Bureau).  Additionally, the civil and criminal penalties of EFTA would not apply to interchange fee regulations.

            The Fed may require any issuer or payment card network to provide information necessary to carry out the above provisions.  The Fed, after issuing the rules referenced above and then at least twice a year, will disclose the aggregate or summary information concerning the costs incurred, and interchange transaction fees charged or received, by issuers or payment card networks in connection with the authorization, clearance, or settlement of electronic debit  transactions as it considers appropriate and in the public interest.

            In issuing regulations, the Fed will consider the functional similarities between electronic debit transactions and checking transactions.  It is to distinguish between the incremental cost incurred by an issuer specific to a particular electronic debit transaction and other costs incurred by the issuer which are not specific to a particular electronic debit transaction.  Costs not specific to a particular electronic debit transaction will not be considered in the assessment of whether a charge is reasonable and proportional.

            The Fed may allow for an adjustment to the fee charged if the adjustment is reasonably necessary to make allowance for costs incurred by the issuer in preventing fraud in relation to electronic debit transactions.

The Fed will establish fraud-related standards.  The standards will be designed to ensure that any fraud-related adjustment is limited to the amount reasonably necessary to make allowance for the cost incurred by the issuer in preventing fraud in relation to electronic debit transactions.  The standards will ensure any fraud-related adjustment takes into account any fraud-related reimbursements.  The standards will require issuers to take effective steps to reduce the occurrence of, and costs from, fraud, including through the development of cost-effective fraud prevention technology.  These regulations will be issued in final form within 9 months of the enactment date, to be effective 1 year after the enactment date.  The Fed is to consider:

·         The nature, type, and occurrence of fraud in debit card transactions;

·         The extent to which the occurrence of fraud depends on whether the transaction is based on signature, PIN, or other means;

·         The available and economical means by which fraud on debit card transactions may be reduced;

·         Fraud prevention and security costs;

·         The costs of fraudulent transactions absorbed by each party involved in the transactions;

·         The extent to which interchange transaction fees have reduced or increased incentives for parties involved in debit card transactions to reduce fraud; and

·         Other factors it considers appropriate.

            This provisions will not apply to: (i) any issuer that, together with its affiliates, has assets of less than $10 billion; (ii) an interchange transaction fee charged with respect to a transaction in which a person uses a government-administered program payment card; or (iii) an interchange transaction fee charged with respect to a debit card transaction in which a person uses a general purpose pre-paid card (other than those marketed as "gift cards"), unless, beginning after the first year of the effective date, the person is charged an overdraft fee or a fee for the first withdrawal per month from an ATM that is part of the issuer's ATM network.  Beginning 12 months after the enactment date, the Fed is to annually provide a report to Congress on the prevalence of the use of general pre-paid cards in government-administered payment programs and the interchange transaction fees and cardholder fees charged for the use of such cards.

10.24.2.            Limitation on Payment Card Network Restrictions.

The Fed is to issue regulations, within 1 year of the enactment of the Act, providing that an issuer or payment card network may not restrict the number of payment card networks on which a debit card transaction may be processed to a single network or two or more networks owned, controlled, or otherwise operated by affiliated persons or networks affiliated with the issuer.

The Fed is to issue regulations, within 1 year of the enactment of the Act, providing that an issuer or payment card network may not inhibit the ability of any person who accepts debit cards for payments to direct the routing of debit card payments for processing over any payment card network that may process such transactions.

            A payment card network may not: (i) inhibit the ability of any person to provide a discount or in-kind incentive for payment by the use of cash, checks, debit cards, or credit cards; (ii) penalize any person for the providing of a discount that is in compliance with Federal law and applicable State law; (iii) inhibit the ability of any person to set a minimum dollar value for the acceptance of credit cards, so long as the minimum does not exceed $10; or (iv) inhibit the ability of any Federal agency or institution of higher education to set a maximum dollar value for the acceptance of credit cards. 

None of these provisions authorize any person to discriminate as to payment networks or card issuers. 1075]