The American Banker wrote an article about a topic near and dear to my heart; the potential for the Federal Reserve to restate the rules regarding debit routing. When the Durbin amendment was enacted, all financial institutions, regardless of their asset size made sure their cards offered a global network and an “unaffiliated” network which meant one of the EFT debit networks also called “PIN” debit networks.
Fast forward to current times, those unaffiliated networks have upped their game and no longer require PINs and have also created products friendlier for ecommerce activity. Senator Durbin now wants to mandate that all issuers offer this new debit card option on their cards. Here’s what the American Banker found out:
As pandemic-scarred consumers increasingly shun traditional shopping experiences and make more purchases remotely, the long-simmering dispute between U.S. banks and merchants over debit card fees is intensifying.
The latest flare-up stems from the nine-year-old federal rules that govern transaction routing, and how they should apply in an environment where e-commerce transactions account for an ever-larger share of debit card spending.
Federal Reserve Board Chairman Jerome Powell said last month that the COVID-19 pandemic has brought additional attention to the issue of whether Visa, Mastercard and major card-issuing banks are circumventing the Fed’s rules, particularly in situations where debit-card users do not enter a four-digit personal identification number.
Powell’s comments came in an Oct. 9 letter to Sen. Richard Durbin, D-Ill. Durbin is an ally of the retail industry who authored the 2010 law that not only required routing choice, but also capped debit-card swipe fees at banks with more than $10 billion of assets. In the letter, Powell said that the Fed will continue to consider and evaluate the PIN-less debit issue, but he did not commit to any particular action.
Powell was responding to a July 24 letter from Durbin and Rep. Peter Welch, D-Vt., in which they asked the Fed to consider potential enforcement actions.
The Democratic lawmakers also requested that the central bank play a coordinating role with other agencies, such as the Federal Trade Commission, that share jurisdiction in ensuring that financial institutions do not engage in anticompetitive practices. The FTC reportedly opened an inquiry into debit-card routing issues last year.
None of the networks, processors or the Fed wanted to provide comments for the American Banker’s article which is an indication of the gravity of this issue to both issuers, merchants and the networks.
Overview by Sarah Grotta, Director, Merchant Services at Mercator Advisory Group