WWW.ALSTONPAYMENTS.COM
This advisory is published by Alston & Bird LLP to provide a summary of signicant developments to our clients and friends. It is intended
to be informational and does not constitute legal advice regarding any specic situation. This material may also be considered attorney
advertising under court rules of certain jurisdictions.
Payment Systems Advisory n
AUGUST 19, 2015
Federal Reserve Board Issues Clarication on Treatment of Transactions-
Monitoring Costs under Regulation II
By: Lauren P. Giles and Duncan Douglass
On August 14, 2015, the Board of Governors of the Federal Reserve System (the Board) published a clarication (the
Clarication) of the Board’s decision to include transactions-monitoring costs in establishing the 21-cent interchange-
fee limitation set forth in Regulation II, Debit Card Interchange Fees and Routing (Regulation II).1 The Clarication
was issued in response to an order of the U.S. Court of Appeals for the D.C. Circuit2 in NACS v. Board of Governors of the
Federal Reserve System (NACS v. Board), the long-running challenge by merchants and merchant trade associations to
Regulation II’s interchange-fee limitation. The appellate court’s order upheld Regulation II as a whole but mandated
that the Board provide further explanation of its decision to allocate such costs to the xed component of the
interchange-fee limitation, rather than to the fraud-prevention adjustment established elsewhere in Regulation II.
The Durbin Amendment’s Interchange-Fee Limitation
The Durbin Amendment3 requires interchange fees charged or received by certain debit card issuers4 in conjunction
with debit card transactions to be “reasonable and proportional” to the costs the issuer incurs in connection with
such transactions.5 The Durbin Amendment instructs the Board to issue rules to establish standards for assessing
whether an interchange fee meets this standard. In so doing, the Durbin Amendment directs the Board to consider
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”6 (referred to as “incremental ACS costs”) and prohibits the Board from
considering “other costs incurred by an issuer which are not specic to a particular electronic debit transaction.”7
1 Debit Card Interchange Fees and Routing, 80 Fed. Reg. 48684 (Aug. 14, 2015), available at http://www.gpo.gov/fdsys/pkg/FR-2015-08-14/
pdf/2015-19979.pdf.
3 Electronic Fund Transfer Act, 15 U.S.C. § 16930-2, “Reasonable fees and rules for payment card transactions,” referenced herein as the “Durbin
Amendment.”
4 Debit card issuers with assets of less than $10 billion are exempt from the interchange-fee limitation. 12C.F.R. §235.5(a)(2).
5 15 U.S.C. § 1693o-2(a)(3)(A).
6 15 U.S.C. § 1693o-2(a)(4)(B)(i)
7 Id. at 4(B)(ii).
