There have been several key developments recently in payments policy. In addition to the late summer introduction of the Credit Card Competition Act, the Federal Reserve Board released the final clarification for Regulation II Debit Routing in early October, and The Wall Street Journal broke a story that the Federal Trade Commission is looking into Visa and Mastercard’s tokenization practices for debit transactions. The Consumer Financial Protection Bureau released its report on Buy Now Pay Later this summer (Check out Oliver Wyman’s analysis on the CFPB BNPL report, which is featured on MAG Insights), and the Department of Treasury published three reports on Digital Assets as part of President Joe Biden’s Executive Order 14067 on “Ensuring Responsible Development of Digital Assets.” With such a busy summer, it’s bound to be an exciting fall!
The Federal Reserve Board released the final clarification to Regulation II (Reg II) regarding debit routing on October 3, 2022, over one year after publishing the proposed rule in May 2021. The final clarification states that issuers must enable at least two unaffiliated networks for each geographic area, each specific merchant, each particular type of merchant, and each particular type of transaction, with a specific focus on card not present transactions. The Fed also elaborates on the use of tokens and that it should not inhibit routing choice. Notably, the effective date for compliance is July 1, 2023. The clarification does not address the debit cap and does not require routing choice by Cardholder Verification Method (CVM).
The MAG filed comments to the proposed clarification (please note a login is required) in August 2021 and has met with Fed Governors and staff many times since the implementation of Reg II in 2011 to discuss the lack of compliance merchants experience in the market, which is a direct violation of the law. Merchants welcome the Fed’s efforts to clarify that two unaffiliated networks are required for ALL debit transactions and expect issuers and networks to comply with the law.
To learn more about the final clarification and the MAG’s position, the MAG hosted a webinar on October 19, 2022, and a recording (please note a login is required) is available in our MAG Learning Center for merchant members. John Drechny, CEO of the MAG; Owen Glist, Partner at Constantine Cannon and Outside Counsel for the MAG; and I discussed key highlights of the clarification and fielded questions from our members. In addition to the webinar, MAG member merchants share insights on debit policy in various forums, including the Debit Routing Community of Practice (COP), the Advocacy and Communications Committee, and the Collaboration Committee. If you are interested in joining the conversation with us, please let me know.
Shortly after the Fed released the final clarification, The Wall Street Journal broke a story that the FTC is looking into Visa and Mastercard’s tokenization practices for debit transactions. MAG staff and members have met with the FTC numerous times since Reg II was enacted to discuss technological innovation and its impact on debit routing, emphasizing the importance that merchants have routing choice for all debit transactions.
The MAG staff will continue to take an active role in explaining the merchants’ position and educating industry stakeholders and government officials regarding the debit routing clarification, how routing works in the market, and why competition and transparency are important to the payments system.
Credit Card Competition Act
In July, Senator Durbin (D-IL) and Senator Marshall (R-KS) introduced S. 4674, the Credit Card Competition Act (CCCA), and in September Representative Welch (D-VT) and Representative Gooden (R-TX) introduced its companion bill, H.R. 8874, in the House. If passed, the CCCA would provide for the Fed to write a rule regarding competitive routing on credit card transactions. The CCCA does NOT include a provision on capping interchange.
In September, over 70 merchants flew to Washington, DC, to meet with lawmakers on Capitol Hill regarding the legislation. The Merchants Payments Coalition (MPC) also organized various letters of support from thousands of merchants and hundreds of trade associations, including the MAG. The legislative calendar is tight for the remainder of the year, but the bill champions and supporters are hopeful for an opportunity for the legislation to be considered this Congress.
As you can see, there is a lot happening in payments policy, and we would love to have you engaged in our efforts. In addition to COPs and committees, MAG also hosts a biweekly Payments Policy call for interested merchant members. Please contact me if you are interested in learning more about any of our engagement opportunities.