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Fed Majority Votes to Finalize Debit Rule

Payments Dive

The Federal Reserve on Monday voted to finalize a proposal to clarify a rule requiring more than one debit card network be available for routing all transactions, including those online.

In a statement on the 6-1 vote to finalize the rule, the Fed said “that debit card issuers should enable at least two payment card networks to process all debit card transactions, including ‘card-not-present’ transactions, such as online payments.” It noted that “the final rule is substantially similar to the proposal issued last year.” It will take effect July 1 of next year.

The Fed proposed clarifying the rule last year because it said evidence all too often showed competing networks were not available for routing debit card transactions, contrary to a 2011 rule requiring them to be.

“The final rule will encourage competition between networks and incentivize them to improve their fraud-prevention capabilities,” the Oct. 3 Fed statement said.

The Fed’s backing for the updated rule is the latest blow to the big networks that process card payments, namely Visa and Mastercard, and to the banks that issue the cards.

The Fed’s initial May 2021 proposal for clarification touched off controversy in the industry. While retailers and other merchants welcomed the effort to reinforce the prior rule requiring at least two networks be available for debit routing, card industry opponents argued the rule shouldn’t necessarily apply for e-commerce.