Dodd-Frank Wall Street Reform and Consumer Protection Act

Are you familiar with recent government regulation changes with respect to payment processing? In July 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act. A major element of that is known as the Durbin Amendment. In essence, the government is intervening and creating price controls with regard to payment card transactions.

July 2010- law signed

October 2010- Changes to minimum transaction amount rules in effect. Discount option available to merchants.

July 2011- Dept of Justice settles with Visa and MasterCard over card steering and discounts, specifically addressing compliance with this Act.

October 2011- new debit card interchange standards go into effect. See also Comments for merchants on debit interchange final rule
Final text of Durbin Amendment as contained in the Dodd Frank Act

‘‘SEC. 920. REASONABLE FEES AND RULES FOR PAYMENT CARD TRANSACTIONS.

‘‘(a) REASONABLE INTERCHANGE TRANSACTION FEES FOR ELECTRONIC DEBIT TRANSACTIONS.—

“(1) REGULATORY AUTHORITY OVER INTERCHANGE TRANSACTION FEES.—The Board may prescribe regulations, pursuant to section 553 of title 5, United States Code, regarding any interchange transaction fee that an issuer may receive or charge with respect to an electronic debit transaction, to implement this subsection (including related definitions), and to prevent circumvention or evasion of this subsection.

‘‘(2) REASONABLE INTERCHANGE TRANSACTION FEES.—The amount of any interchange transaction fee that an issuer may receive or charge with respect to an electronic debit transaction shall be reasonable and proportional to the cost incurred by the issuer with respect to the transaction.

‘‘(3) RULEMAKING REQUIRED.—

‘‘(A) IN GENERAL.—The Board shall prescribe regulations in final form not later than 9 months after the date of enactment of the Consumer Financial Protection Act of 2010, to establish standards for assessing whether the amount of any interchange transaction fee described in paragraph (2) is reasonable and proportional to the cost incurred by the issuer with respect to the transaction.

‘‘(B) INFORMATION COLLECTION.—The Board may require any issuer (or agent of an issuer) or payment card network to provide the Board with such information as may be necessary to carry out the provisions of this subsection and the Board, in issuing rules under subparagraph (A) and on at least a bi-annual basis thereafter, shall disclose such aggregate or summary information concerning the costs incurred, and interchange transaction fees charged or received, by issuers or payment card networks in connection with the authorization, clearance or settlement of electronic debit transactions as the Board considers appropriate and in the public interest.

‘‘(4) CONSIDERATIONS; CONSULTATION.—In prescribing regulations under paragraph (3)(A), the Board shall—

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“(A) consider the functional similarity between—

‘‘(i) electronic debit transactions; and ‘‘(ii) checking transactions that are required within the Federal Reserve bank system to clear at par;

‘‘(B) distinguish between—

‘‘(i) the incremental cost incurred by an issuer for the role of the issuer in the authorization, clearance, or settlement of a particular electronic debit transaction, which cost shall be considered under paragraph (2); and

‘‘(ii) other costs incurred by an issuer which are not specific to a particular electronic debit transaction, which costs shall not be considered under paragraph (2); and

‘‘(C) consult, as appropriate, with the Comptroller of the Currency, the Board of Directors of the Federal Deposit Insurance Corporation, the Director of the Office of Thrift Supervision, the National Credit Union Administration Board, the Administrator of the Small Business Administration, and the Director of the Bureau of Consumer Financial Protection.

‘‘(5) ADJUSTMENTS TO INTERCHANGE TRANSACTION FEES FOR FRAUD PREVENTION COSTS.—

‘‘(A) ADJUSTMENTS.—The Board may allow for an adjustment to the fee amount received or charged by an issuer under paragraph 25 (2), if—

‘‘(i) such adjustment is reasonably necessary to make allowance for costs incurred by the issuer in preventing fraud in relation to electronic debit transactions involving that issuer; and

‘‘(ii) the issuer complies with the fraud-related standards established by the Board under subparagraph (B), which standards shall—

‘‘(I) be designed to ensure that any fraud-related adjustment of the issuer is limited to the amount described in clause (i) and takes into account any fraud-related reimbursements (including amounts from charge-backs) received from consumers, merchants, or payment card networks in relation to electronic debit transactions involving the issuer; and

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‘‘(II) require issuers to take effective steps to reduce the occurrence of, and costs from, fraud in relation to electronic debit transactions, including through the development and implementation of cost-effective fraud prevention technology.

‘‘(B) RULEMAKING REQUIRED.—

‘‘(i) IN GENERAL.—The Board shall prescribe regulations in final form not later than 9 months after the date of enactment of the Consumer Financial Protection Act of 2010, to establish standards for making adjustments under this paragraph.

‘‘(ii) FACTORS FOR CONSIDERATION.—In issuing the standards and prescribing regulations under this paragraph, the Board shall consider—

‘‘(I) the nature, type, and occurrence of fraud in electronic debit transactions;

‘‘(II) the extent to which the occurrence of fraud depends on whether authorization in an electronic debit transaction is based on signature, PIN, or other means;

‘‘(III) the available and economical means by which fraud on electronic debit transactions may be reduced;

‘‘(IV) the fraud prevention and data security costs expended by each party involved in electronic debit transactions (including consumers, persons who accept debit cards as a form of payment, financial institutions, retailers and payment card networks);

‘‘(V) the costs of fraudulent transactions absorbed by each party involved in such transactions (including consumers, persons who accept debit cards as a form of payment, financial institutions, retailers and payment card networks);

‘‘(VI) the extent to which interchange transaction fees have in the past reduced or increased incentives for parties involved in electronic debit transactions to reduce fraud on such transactions; and

‘‘(VII) such other factors as the Board considers appropriate. ‘‘(6) EXEMPTION FOR SMALL ISSUERS.—

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‘‘(A) IN GENERAL.—This subsection shall not apply to any issuer that, together with its affiliates, has assets of less than $10,000,000,000, and the Board shall exempt such issuers from regulations prescribed under paragraph (3)(A).

‘‘(B) DEFINITION.—For purposes of this paragraph, the term ‘‘issuer’’ shall be limited to the person holding the asset account that is debited through an electronic debit transaction.

‘‘(7) EXEMPTION FOR GOVERNMENT-ADMINISTERED PAYMENT PROGRAMS AND RELOADABLE PREPAID CARDS.—

‘‘(A) IN GENERAL.—This subsection shall not apply to an interchange transaction fee charged or received with respect to an electronic debit transaction in which a person uses—

‘‘(i) a debit card or general-use prepaid card that has been provided to a person pursuant to a Federal, State or local government- administered payment program, in which the person may only use the debit card or general-use prepaid card to transfer or debit funds, monetary value, or other assets that have been provided pursuant to such program; or

‘‘(ii) a plastic card, payment code, or device that is—

‘‘(I) linked to funds, monetary value, or assets which are purchased or loaded on a prepaid basis;

‘‘(II) not issued or approved for use to access or debit any account held by or for the benefit of the card holder (other than a subaccount or other method of recording or tracking funds purchased or loaded on the card on a prepaid basis);

‘‘(III) redeemable at multiple, naffiliated merchants or service providers, or automated teller machines;

‘‘(IV) used to transfer or debit unds, monetary value, or other assets; and

‘‘(V) reloadable and not marketed or labeled as a gift card or gift certificate.

‘‘(B) EXCEPTION.—Notwithstanding subparagraph (A), after the end of the 1-year period beginning on the effective date provided in paragraph (9) his subsection shall apply to an interchange transaction fee charged or received with respect to an electronic debit transaction described in

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subparagraph (A)(i) in which a person uses a general-use prepaid card, or an electronic debit transaction described in subparagraph (A)(ii), if any of the following fees may be charged to a person with respect to the card:

‘‘(i) A fee for an overdraft, including a shortage of funds or a transaction processed for an amount exceeding the account balance.

‘‘(ii) A fee imposed by the issuer for the first withdrawal per month from an automated teller machine that is part of the issuer’s designated automated teller machine network.

‘‘(C) DEFINITION.—For purposes of subparagraph (B), the term ‘designated automated teller machine network’ means either—

‘‘(i) all automated teller machines identified in the name of the issuer; or

‘‘(ii) any network of automated teller machines identified by the issuer that provides reasonable and convenient access to the issuer’s customers.

‘‘(D) REPORTING.—Beginning 12 months after the date of enactment of the Consumer Financial Protection Act of 2010, the Board shall annually provide a report to the Congress regarding —

‘‘(i) the prevalence of the use of general-use prepaid cards in Federal, State or local government-administered payment programs; and

‘‘(ii) the interchange transaction fees and cardholder fees charged with respect to the use of such general-use prepaid cards.

‘‘(8) REGULATORY AUTHORITY OVER NETWORK FEES.—

‘‘(A) IN GENERAL.—The Board may prescribe regulations, pursuant to section 553 of 22 title 5, United States Code, regarding any network fee.

‘‘(B) LIMITATION.—The authority under subparagraph (A) to prescribe regulations shall be limited to regulations to ensure that—

‘‘(i) a network fee is not used to directly or indirectly compensate an issuer with respect to an electronic debit transaction; and

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‘‘(ii) a network fee is not used to circumvent or evade the restrictions of this subsection and regulations prescribed under such subsection.

‘‘(C) RULEMAKING REQUIRED.—The Board shall prescribe regulations in final form before the end of the 9-month period beginning on the date of the enactment of the Consumer Financial Protection Act of 2010, to carry out the authorities provided under subparagraph (A).

‘‘(9) EFFECTIVE DATE.—This subsection shall take effect at the end of the 12- month period beginning on the date of the enactment of the Consumer Financial Protection Act of 2010.

‘‘(b) LIMITATION ON PAYMENT CARD NETWORK RESTRICTIONS.— ‘‘(1) PROHIBITIONS AGAINST EXCLUSIVITY ARRANGEMENTS.—

‘‘(A) NO EXCLUSIVE NETWORK.—The Board shall, before the end of the 1-year period beginning on the date of the enactment of the Consumer Financial Protection Act of 2010, prescribe regulations providing that an issuer or payment card network shall not directly or through any agent, processor, or licensed member of a payment card network, by contract, requirement, condition, penalty, or otherwise, restrict the number of payment card networks on which an electronic debit transaction may be processed to—

‘‘(i) 1 such network; or

‘‘(ii) 2 or more such networks which are owned, controlled, or otherwise operated by —

‘‘(I) affiliated persons; or

‘‘(II) networks affiliated with such issuer.

‘‘(B) NO ROUTING RESTRICTIONS.—The Board shall, before the end of the 1-year period beginning on the date of the enactment of the Consumer Financial Protection Act of 2010, prescribe regulations providing that an issuer or payment card network shall not, directly or through any agent, processor, or licensed mem ber of the network, by contract, requirement, condition, penalty, or otherwise, inhibit the ability of any person who accepts debit cards for payments to direct the routing of electronic debit transactions for processing over any payment card network that may process such transactions.

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‘‘(2) LIMITATION ON RESTRICTIONS ON OFFERING DISCOUNTS FOR USE OF A FORM OF PAYMENT.—

‘‘(A) IN GENERAL.—A payment card network shall not, directly or through any agent, processor, or licensed member of the network, by contract, requirement, condition, penalty, or otherwise, inhibit the ability of any person to provide a discount or in-kind incentive for payment by the use of cash, checks, debit cards, or credit cards to the extent that—

‘‘(i) in the case of a discount or in kind incentive for payment by the use of debit cards, the discount or in-kind incenttive does not differentiate on the basis of the issuer or the payment card network;

‘‘(ii) in the case of a discount or in-kind incentive for payment by the use of credit cards, the discount or in-kind incentive does not differentiate on the basis of the issuer or the payment card network; and

‘‘(iii) to the extent required by Federal law and applicable State law, such discount or in-kind incentive is offered to all prospective buyers and disclosed clearly and conspicuously.

‘‘(B) LAWFUL DISCOUNTS.—For purposes of this paragraph, the network may not penalize any person for the providing of a discount that is in compliance with Federal law and applicable State law.

‘‘(3) LIMITATION ON RESTRICTIONS ON SETTING TRANSACTION MINIMUMS OR MAXIMUMS.—

‘‘(A) IN GENERAL.—A payment card network shall not, directly or through any agent, processor, or licensed member of the network, by contract, requirement, condition, penalty, or otherwise, inhibit the ability—

‘‘(i) of any person to set a minimum dollar value for the acceptance by that person of credit cards, to the extent that —

‘‘(I) such minimum dollar value does not differentiate between issuers or between payment card networks; and

‘‘(II) such minimum dollar value does not exceed $10.00; or

‘‘(ii) of any Federal agency or institution of higher education to set a maximum dollar value for the acceptance by that Federal agency or institution of higher education of credit cards, to the extent that such maximum dollar value does not differentiate between issuers or between payment card networks.

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‘‘(B) INCREASE IN MINIMUM DOLLAR AMOUNT.—The Board may, by regulation prescribed pursuant to section 553 of title 5, United States Code, increase the amount of the dollar value listed in subparagraph (A)(i)(II).

‘‘(4) RULE OF CONSTRUCTION:.—No provision of this subsection shall be construed to authorizeany person—

‘‘(A) to discriminate between debit cards within a payment card network on the basis of the issuer that issued the debit card; or

‘‘(B) to discriminate between credit cards within a payment card network on the basis of the issuer that issued the credit card.

‘‘(c) DEFINITIONS.—For purposes of this section, the following definitions shall apply:

‘‘(1) AFFILIATE.—The term ‘affiliate’ means any company that controls, is controlled by, or is under common control with another company.

‘‘(2) DEBIT CARD.—The term ‘debit card’— ‘‘(A) means any card, or other payment code or device, issued or approved for use through a payment card network to debit an asset account (regardless of the purpose for which the account is established), whether authorization is based on signature, PIN, or other means;

‘‘(B) includes a general-use prepaid card, as that term is defined in section 915(a)(2)(A); and

‘‘(C) does not include paper checks.

‘‘(3) CREDIT CARD.—The term ‘credit card’ has the same meaning as in section 103 of the Truth in Lending Act.

‘‘(4) DISCOUNT.—The term ‘discount’—

‘‘(A) means a reduction made from the price that customers are informed is the regular price; and

‘‘(B) does not include any means of increasing the price that customers are informed is the regular price.

‘‘(5) ELECTRONIC DEBIT TRANSACTION.—The term ‘electronic debit transaction’ means a transaction in which a person uses a debit card.

‘‘(6) FEDERAL AGENCY.—The term ‘Federal agency’ means—

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‘‘(A) an agency (as defined in section 101of title 31, United States Code); and

‘‘(B) a Government corporation (as defined in section 103 of title 5, United States Code).

‘‘(7) INSTITUTION OF HIGHER EDUCATION.— The term ‘institution of higher education’ has the same meaning as in 101 and 102 of the Higher Education Act of 1965 (20 U.S.C. 1001, 1002).

‘‘(8) INTERCHANGE TRANSACTION FEE.—The term ‘interchange transaction fee’ means any fee established, charged or received by a payment card network for the purpose of compensating an issuer for its involvement in an electronic debit transaction.

‘‘(9) ISSUER.—The term ‘issuer’ means any person who issues a debit card, or credit card, or the agent of such person with respect to such card.

‘‘(10) NETWORK FEE.—The term ‘network fee’ means any fee charged and received by a payment card network with respect to an electronic debit transaction, other than an interchange transaction fee.

‘‘(11) PAYMENT CARD NETWORK.—The term‘payment card network’ means an entity that directly, or through licensed members, processors, or agents, provides the proprietary services, infrastructure, and software that route information and data to conduct debit card or credit card transaction authorization, clearance, and settlement, and that a person uses in order to accept as a form of payment a brand of debit card, credit card or other device that may be used to carry out debit or credit transactions.

‘‘(d) ENFORCEMENT.—

‘‘(1) IN GENERAL.—Compliance with the requirements imposed under this section shall be enforced under section 918.

‘‘(2) EXCEPTION.—Sections 916 and 917 shall not apply with respect to this section or the requirements imposed pursuant to this section.’’.

(b) AMENDMENT TO THE FOOD AND NUTRITION ACT 8 OF 2008.—Section 7(h)(10) of the Food and Nutrition Act of 2008 (7 U.S.C. 2016(h)(10)) is amended to read as follows: ‘‘(10) FEDERAL LAW NOT APPLICABLE.—Section 920 of the Electronic Fund Transfer Act shall not apply to electronic benefit transfer or reimbursement systems under this Act.’’.

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(c) AMENDMENT TO THE FARM SECURITY AND RURAL INVESTMENT ACT OF 2002.—Section 4402 of the Farm Security and Rural Investment Act of 2002 (7 U.S.C. 3007) is amended by adding at the end the following new subsection:

‘‘(f) FEDERAL LAW NOT APPLICABLE.—Section 920 of the Electronic Fund Transfer Act shall not apply to electronic benefit transfer systems established under this section.’’. (d) AMENDMENT TO THE CHILD NUTRITION ACT OF 1966.— Section 11 of the Child Nutrition Act of 1966 (42 U.S.C. 1780) is amended by adding at the end the following:

‘‘(c) FEDERAL LAW NOT APPLICABLE.—Section 920 of the Electronic Fund Transfer Act shall not apply to electronic benefit transfer systems established under this Act or the Richard B. Russell National School Lunch Act (42 U.S.C. 1751 et seq.).’’.

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