Dan Fisher

With over 35 years in the financial industry, Dan M. Fisher has proven himself as a leader in the financial industry holding roles as the former director of the Federal Reserve Bank of Minneapolis and former Chairman of the ABA Payment Committee.

Debit Card Interchange, Regulation II, Large Retailers…. It is a BIG Issue to Community Institutions

It has been quite a while since we have heard from the Fed regarding the proposed changes to Regulation II. To update you, with a July 12, 2021, deadline, a huge industry response of 2,700 comments were submitted (I cannot remember if there has been a proposed rule to receive more comments). Astounding to say the least, but more importantly this reaction proves the FED should take a hard look at the issues raised.

One of the reasons for the delay can be explained by the Research and Analysis Report regarding the Development in Non-Cash Payments for 2019 and 2020. Issued by the Fed on December 21, 2021, the report explains how the pandemic truly impacted card not present transactions in as much as the dollar value now exceeds that of card present transactions. Both the Big Box stores and Card Payment Networks are clamoring for a Reg. II requirement for all issuers, regardless of size, to offer PINLess Card Not Present debit card transactions because it represents billions in increased revenue for them and shifted liability to the issuer – you.

Be it exempt or covered institutions, PINLess Debit Card Not Present or Card Present transactions means monumental increases in debit card fraud and lost income to the FI. No matter how you look at it, large retailers and card payment networks are already enjoying a feeding frenzy of shifting liability and reduced interchange payments to financial institutions. Now they want to go after the covered institution too.

Take a look at the Comment Letter from Walmart to the Fed on the Reg II changes and how they view the industry response. Walmart characterized the comments submitted by community financial institutions as mass generated form letters and not legitimate feedback. Walmart even says that transactions were routed to unaffiliated networks. What is not stated is that most of these transactions were PINLess Debit, some even negotiated directly with card payment networks. These transactions cut the interchange income in half for community financial institutions while shifting fraud liability of up to $100.00 to community financial institutions.

This means that the community FI is unable to charge the transaction back if it is fraudulent, and Walmart on the other side does not have to worry about the transaction at a particular card payment network if it is a $100.00 or less. What big box store wouldn’t want this? They don’t have to worry about fraud chargebacks for a large portion of their transactions. Imagine if large retailers can get this same option on PINLess Debit Card Not Present for Exempt institution. Now we are talking real money, right? Well, it is already real money and real losses for community financial institutions.

When the number of comments break records and raise the issue to the FED for consideration, they are marginalized by a large retailer. Shame on you! The comments are real, complex, and come from grassroot financial institutions in communities all over the country. They are real comments that scream that the PINLess Debit abuse must stop.

Even though the proposed rules change is focused on institutions 10 billion and greater, the large number comments clearly come from small financial institutions. In particular, the current manipulation of Regulation II by Card Payment Networks, Merchant Acquirers, and Retailers runs counter to the intention of Durbin in preserving income for community financial institutions (Some institutions have the Card Payment Network logo on the back of the debit card). The plight of these small community financial institutions and the exploitative rule manipulation tactics employed by the vendors have been finally brought to the attention of the Fed. Furthermore, to their surprise, the comments that have been submitted in the response to the proposed rule changes to Regulation II raise a very big issue to small and large issuers and go way beyond the Card Not Present transactions implication for internet purchases.

So, the question must be asked: Why is the Fed taking so long to promulgate and publish the revised rules?

They did not expect the volume of comments and they did not see the potential impact on the financial institutions. The propaganda published by retailers and card payment networks is finally being brought out into the light. The issue is worthy for serious consideration by the Fed, and it is important they get it right! Take in mind, there are some core and EFT processors that own the core platform, the EFT processing, the Card Payment Network, and the Merchant/Acquirer Network. They are trying put a fence around their payments franchise. I do not call this free-market competition when less than five vendors own a large majority of the payment space and dictate PINLess Debit rules. Interesting… all the card payment networks have PINLess Debit Rules that are NOT favorable to the issuer.

I would like to suggest that if you are a community financial institution you send another letter to the Fed. The link is:


Request that they withdraw the proposed Reg. Revision and ban all PINLess Debit rules for exempt and covered intuitions. You can’t be heard if you don’t speak up!

-The Wombat!

get a free EFT review for interchange income

Dan Fisher

With over 35 years in the financial industry, Dan M. Fisher has proven himself as a leader in the financial industry holding roles as the former director of the Federal Reserve Bank of Minneapolis and former Chairman of the ABA Payment Committee.

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