Federal Reserve Releases Final Rule to Implement the Durbin Amendment


On June 29, 2011, the Board of Governors of the Federal Reserve (Board) released its final rule (Final Rule) to implement Section 920 of the Electronic Fund Transfer Act (EFTA), as enacted by Section 1075 of the Dodd-Frank Wall Street Reform and Consumer Protection Act—generally referred to as the “Durbin Amendment.”

Among other things, the Final Rule establishes a cap for interchange fees for electronic debit transactions, clarifies the types of payment products that are exempt from the interchange fee cap, and prohibits certain types of activities such as network exclusivity and circumvention and evasion of the interchange fee cap.

The Board also released an interim final rule and request for comment (Interim Final Rule) on an available one-cent adjustment to interchange transaction fees that allows issuers to recoup a portion of fraud-prevention costs.

This advisory briefly summarizes the Final Rule including: key definitions; interchange fee standards and exceptions; standards regarding network exclusivity and routing; remedies; adjustments for fraud prevention activities; and other matters, including an update on the TCF Bank litigation.

The full text of the Final Rule may be accessed here, and the Interim Final Rule here. The full text of the Dodd-Frank Act may be accessed here.

Key definitions

The Final Rule establishes a number of key definitions. In the included Addendum we highlight those with particular significance, as well as those where definitions have been revised from those appearing in the EFTA or in other federal laws or regulations.

Interchange fee capped at 21 cents plus variable recovery fee for fraud loss

The Final Rule establishes a cap on interchange fees, consisting of two components: (1) a fixed base component of 21 cents ($0.21) per transaction, and (2) a variable ad valorem component of five basis points of the transaction value. This cap applies uniformly to all networks, debit cards, or authentication methods and issuers are not required to demonstrate actual transaction allowable costs.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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