On May 20, 2010, the Senate approved (59-39) the Restoring American Financial Stability Act of 2010 (the “Wall Street Reform Bill,” or the “Bill”), containing significant reforms to the financial system and including Senator Dick Durbin’s (D-IL) Amendment 3989 (the “Amendment”). The Amendment sets forth two key areas of debit and credit card regulation that are relevant to merchant processors and card issuers.

First, the Amendment both grants authority to and mandates the Federal Reserve to set debit interchange rates that are “reasonable and proportionate” to the actual processing costs within nine months after passage of the Consumer Financial Protection Act of 2010 (which is part of the Wall Street Reform Bill). Interchange rates are percentage-based fees charged to merchants for the acceptance of payment cards and are paid to card issuers to cover processing and payment settlement costs. In setting these rates, the Federal Reserve is to consider the actual cost of authorization and settlement of debit transactions but is not to consider the other processing costs (for example, card network registration, back office processing costs, or data security compliance) that are not associated with a particular debit transaction.