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The latest on the Durbin Amendment

On June 29, 2011, the United States Federal Reserve Board voted to proceed with a plan to execute the legislation enacted into law under the Dodd-Frank Act of 2010. Known as the Durbin Amendment, this legislation will change the landscape of retail payments in the U.S..

Issuers, processors, acquirers, and merchants will all be affected – significantly, in many cases – by the two major changes legislated by the U.S. federal government: changes to debit card interchange fee rates and new policy regarding network exclusivity.

Although the legislation has been known for almost a full year, the details of the legislation have been somewhat ambiguous, and the time line for executing the law into action has been rolled out as a series of milestones, rather than as a fixed date for full adoption of the laws. However, after yesterday’s motion, the U.S. retail payments industry now has clarity on the two major points of the legislation.

First, new debit card interchange fee rates will be capped at 21 USD cents and an ad valorem component of 5 basis points (effective October 1, 2011). An additional fraud prevention adjustment (USD 1 cent) can be earned on each transaction in situations where the issuer performs prescribed actions to detect and prevent fraud.

Network exclusivity compliance will be enforced such that an issuer and payment card network must provide a merchant accepting its debit with two non-affiliated networks, regardless of authorization method, meaning PIN or signature debit (effective October 1, 2011 for card networks and April 1, 2012 for card issuers).

This legislation dramatically changes the retail payments ecosystem in the U.S. No company remains unaffected, and that includes payment solution vendors like ACI Worldwide. We have been tracking this legislation for well over a year and have been working with our customer base and industry experts in the U.S. to understand the impacts of the legislation on their business models. ACI will continue to monitor the interpretations of the legislation and partner with our customers throughout the industry to ensure that our payment solutions will not only comply with the legislated changes in the U.S., but enable issues, processors and merchants to maximize their economic returns from this new landscape for debit card payments.

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