NACS Urges Strengthening of Fed's Debit Interchange Rules

ALEXANDRIA, Va. — NACS, the Association for Convenience & Fuel Retailing, sent a letter to the Federal Reserve System asking its board of governors to reduce the debit card interchange fee standard even more, in order to further extend the beneficial impact of the regulations that originally went into effect in 2011.

The letter, which was also written on behalf of SIGMA, comes as the Fed is reviewing its debit card regulations, as required by the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA).

The regulations under review now set the standard for assessing whether debit card interchange fees are reasonable and proportional to the transaction costs incurred by the debit card issuer. The rules were issued pursuant to the Durbin Amendment in the Dodd–Frank Wall Street Reform and Consumer Protection Act, according to NACS. 

For larger financial institutions — banks with more than $10 billion in assets — this regulation, known as Regulation II or Reg. II, essentially capped the debit interchange fee that can be charged for each transaction.

"While debit fees should have been reduced even further than they have been to date," NACS did acknowledge that Reg. II has ultimately been a "net positive" for its constituents since going into effect in 2011. 

"By lowering retailers' costs of accepting debit transactions, small businesses have been able to pass on savings to consumers in the form of lower prices," the association wrote in its letter.

At least once every 10 years, federal banking agencies are required by EGRPRA to conduct a review of all regulations in order to identify outdated or otherwise unnecessary regulatory requirements imposed on insured depository institutions. As part of its review, the Fed solicited public comments from interested stakeholders. NACS responded to this request for public comment.  

To counter the expected arguments from financial institutions against Reg. II, NACS outlined in its letter how "Regulation II is not unduly burdensome on financial institutions," but is, in fact, a benefit to them — it has incentivized greater transaction efficiency and allowed small banks to grow their market share.

Rather than weakening Reg. II as it undertakes its regulatory review under EGRPRA, NACS urged the Fed to further "reduce the debit interchange fee standard in order to further extend the beneficial impact of the regulation."

The board will review all public comments before deciding whether further action is appropriate. The Fed is also expected to undertake a separate review of Reg. II later this year, according to NACS.

To read NACS' full comments, click here.