WASHINGTON (7/13/11)—In its first step to facilitate a two-tiered debit card interchange fee structure since adoption of its final rule, the Federal Reserve Tuesday issued two lists—one with the names of each institution considered to be covered by the new cap on debit interchange fees and another with the names of those that are exempt. The Dodd-Frank Wall Street Reform Act, which required the Fed to set standards to determine whether debit interchange fees for larger issuers are reasonable and proportionate to their costs, also specifically exempts card issuers with less than $10 billion in assets from the direct reach of the cap. The exemption would apply to all but three credit union issuers. However, many parties—the Credit Union National Association among them—have voiced concerns that the interchange law lacks an enforcement mechanism for the small issuers' exemption, and have said that there is no guarantee the payment card networks will operate a two-tiered system the exemption necessitates for small issuers. A resolution adopted by the Fed as part of its interchange rule requires agency staff to report by April 2012 on whether there is a two-tiered system and the impact of the rule on small issuers' interchange fee income. Staff will also bring a more comprehensive report to the board by April 2013, which will include such information as whether there is a change in debit interchange fee income for smaller issuers, whether merchants are discriminating against small issuers, and the impact of exclusivity provisions. The Fed release notes that, based on information as of Dec. 31, 2010, institutions have been grouped into two categories: “Exempt” and “Not Exempt.” However, a small number of debit card issuers may not appear on either of these lists, such as:
* Institutions for which the Fed has incomplete affiliate data; * De novo institutions for which the Fed did not have financial data as of the December date; and * Issuers without federal deposit insurance.
The Fed added that if an issuer does not appear on either list and is exempt from the interchange fee standards, it should “so certify to its participating payment card networks.” If an institution believes its placement on a list is not accurate, the Fed said it may submit a request for a correction of the information using this email address: IssuerExemptionListsRegII@frb.gov. It was just two weeks ago that the Fed adopted its final rule, which, in part:
* Caps large issuer debit interchange fees at 21 cents, to cover network connectivity, hardware, software, and labor costs, as well as costs related to network processing and transaction monitoring; and * Allows an additional five basis points per transaction to be charged to cover fraud losses
A separate interim final rule would allow an additional penny to be charged if financial institutions are in compliance with Fed established fraud prevention standards. Comments on this interim final rule, which is effective Oct. 1, will be accepted until Sept. 30. The debit interchange cap is also effective Oct. 1. The Fed plans to update its exempt/not exempt lists annually.