On May 30, 2023, the Federal Trade Commission (FTC) announced that it had finalized a consent order with one of the nation’s largest credit and debit card providers in an administrative action regarding alleged violations of the Electronic Funds Transfer Act (EFTA), as amended, 15 U.S.C. § 1693o-2, and its implementing regulation, Regulation II, 12 C.F.R. § 235 et seq. According to the FTC’s press release first announcing the proposed consent order six months ago, the company, which operates a payment card network, “was flouting the law by setting policies to block merchants from routing ecommerce transactions using [its ]branded debit cards saved in ewallets to alternative payment card networks, including networks that may charge lower fees than” the company. The FTC’s Decision and Order requires the company to end those allegedly violative practices.
The FTC’s Complaint alleges that the company “refused to comply” with Regulation II, which is colloquially known as the “Durbin Amendment,” and was enacted to prohibit business practices that contributed to high and escalating fees on debit card transactions. Complaint ⁋⁋ 6, 18. For example, the FTC’s Complaint remarks that “[p]ayment card networks and issuers often entered into mutually beneficial agreements requiring merchants to route transactions exclusively to the network on the front of the card, which forced merchants to pay higher fees to both networks and issuers.” Id. ⁋ 18. According to the Complaint, the company has violated the Durbin Amendment by “implement[ing] policies that . . . require[] merchants to route online ewallet transactions made using [its ]branded debit cards”—such as transactions using Apple Pay, Google Pay, and Samsung Wallet—to the company for processing, “and bear the fees [it] charges. Merchants are thus not able to route these transactions to any other payment card network, including networks that may charge lower fees than [the company].” Id. ⁋⁋ 6, 24. Specifically, the Complaint alleges that the company’s policy is to “detokenize” any “card-present” (or “in-store”) debit transactions using an ewallet, which means that the company allows merchants to route the transactions to competing networks. Id. ⁋ 34. However, the company does “not detokenize for card-not-present (ecommerce) debit transactions, including those using an ewallet,” meaning those “transaction[s] must be routed over the [company’s] network.” Id. ⁋ 35. “Indeed, [the company] requires, and affirmatively tells merchants it requires, that merchants route card-not-present ewallet transactions using [its ]branded debit cards to the [company’s] network.” Id.
Under the FTC’s Decision and Order, the company will be banned from directly or indirectly “inhibit[ing] the ability of any [merchant] that accepts or honors debit cards for payments to direct the routing of [debit transactions] for processing over any [p]ayment [c]ard [n]etwork that may process such transactions.”
The FTC’s action to enforce the Durbin Amendment is the first of its kind, and serves as a reminder to debit card issuers to double-check their practices, particularly in light of the increasing prevalence of ewallet transactions.
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