A Further Look At The FRB's Debit Interchange Cap Proposal

As we mentioned last week, the Federal Reserve Board ("FRB") announced proposed changes to Regulation II (Debit Card Interchange Fees and Routing), which is the implementing regulation of the Durbin Amendment to the Dodd-Frank Act that required the FRB to establish a cap on debit interchange fees that is reasonable and proportional to the cost incurred by the debit card issuer.

The Federal Reserve last touched on Regulation II in 2012, basing the calculation of the interchange fee caps upon numbers from 2009 and 2010. The proposal is based on expense numbers from 2021, and the FRB stated "that the costs incurred by covered issuers in connection with debit card transactions have changed significantly over time," with "transaction-processing costs on which the Board based the base component [having] nearly halved, the issuer fraud losses on which the Board based the ad valorem component [having] fallen, and the fraud-prevention costs on which the Board based the