In October 2022, the Federal Reserve issued a final ruling on Regulation II (Durbin Amendment), which requires two unaffiliated networks on a debit card and sets a cap on debit interchange rates. In this ruling, the Fed clarified that the two unaffiliated network requirement also applies to the Card Not Present (CNP) environment and announced an implementation deadline of July 1, 2023.
PSCU has been very public in our opposition to the Durbin Amendment and our belief that it should be repealed. The Durbin Amendment took critical resources away from smaller financial institutions including the credit unions we serve, who, while they were exempt from debit interchange cap provisions, still saw significant declines in interchange revenue. As a result, these financial institutions were forced to offset the interchange revenue losses by raising other fees consumers pay (including monthly service fees and minimum balance fees). The Durbin Amendment hit the least affluent American the hardest, leading to an additional one million underbanked Americans.
As we move towards the implementation deadline of July 1, we continue to work closely with our clients to ensure they are compliant and – more importantly – prepared for the financial and fraud impact that the new Regulation II changes will have on their business. Looking ahead, we expect the following impacts:
- Financial institutions will see a rise in fraud and chargebacks. Most CNP volume flows over the dual message networks today, which have built and refined sophisticated risk tools since the beginning of online commerce. This is a wholly different environment than face-to-face commerce and requires the merchant, network and issuer to collaboratively fight fraud. As more volume flows over networks that have historically seen little CNP volume, we expect a significant rise in fraud that our clients will have to manage from an operational and risk standpoint.
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