3:06 pm - Thursday September 26, 0374

DFA and Regulation of interchange fees

The Dodd Frank Wall Street Reform and Consumer Protection Act (The Dodd Frank Act) was enacted on July 21, 2010.

Section 1075 of the Dodd Frank Act amends the Electronic Fund Transfer Act (EFTA) by adding a new section 920 regarding debit card interchange transaction fees and rules for payment card transactions.

Accordingly the Federal Reserve Board has amended the provisions in Regulation II (Debit Card Interchange Fees and Routing) that govern adjustments to debit card interchange transaction fees to make an allowance for fraud-prevention costs incurred by issuers.

The amendments permit an issuer to receive or charge an amount of no more than 1 cent per transaction (the same amount currently permitted) in addition to its interchange transaction fee if the issuer develops and implements policies and procedures that are reasonably designed to take effective steps to reduce the occurrence of, and costs to all parties from, fraudulent electronic debit transactions.

The amendments set forth fraud-prevention aspects that an issuer’s policies and procedures must address and require an issuer to review its policies and procedures at least annually, and update them as necessary in light of their effectiveness, cost-effectiveness, and changes in the types of fraud, methods used to commit fraud, and available fraud-prevention methods.

An issuer must notify its payment card networks annually that it complies with the Board’s fraud-prevention standards.

Finally, the amendments provide that an issuer that is substantially noncompliant with the Board’s fraud-prevention standards is ineligible to receive or charge a fraud-prevention adjustment and set forth a timeframe within which an issuer must stop receiving or charging a fraud-prevention adjustment.

This rule is effective 1st October 2012

Many thanks DFA and Federal Reserve for the inputs

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