Better Markets filed a comment letter to the Federal Reserve Board supporting its proposed clarifications to its Regulation II that would help to ensure competition for card-not-present debit card transactions, such as online purchases. Recent years have seen substantial growth in such transactions, particularly over the COVID-19 pandemic, and the proposed clarifications would promote lower associated fees for merchants and consumers.

Better Markets fully supported the Federal Reserve’s proposal to clarify its debit card transaction regulation (Regulation II) that will help to ensure a minimum level of competition within the debit card payment market for “card not present” transactions, such as online purchases.

Why it matters. Online purchases of goods and services have been increasing since the finalization in 2011 of the Fed’s regulation, especially over the course of the COVID-19 pandemic. The regulation implemented the requirements of the so-called Durbin Amendment of the Dodd-Frank Act. It limits the fees banks can charge on debit card transactions (interchange fees) and requires card-issuing banks to ensure businesses have a choice of payment networks to route debit card transactions. However, banks have not been meeting the requirement of ensuring payment card network choice for card-not-present transactions, thereby preventing the competition among networks that promotes lower fees and industry innovation.

What we said. “Better Markets fully supports the proposed clarifications as they would ensure that issuers and payment card networks are unquestionably aware that the prohibitions on network exclusivity and on effective or imposed limitations to network routing both apply to card-not-present debit card transactions.” Also, although not part of the proposal, Better Markets also urged the Fed to analyze and assess any potential unintended market issues caused by the $10 billion thresholds on debit transaction interchange fee limits and to release a report for consumption by the public and lawmakers.

Bottom line. The proposed clarifications are necessary and sensible and will help businesses and consumers, especially for online debit card transactions.

Read the comment letter here.