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Upcoming Durbin Amendment's Network Exclusivity Requirement

Coming up is an important date, April 1, 2012, for the Federal Reserve’s interchange rule. On that day, the network exclusivity provisions go into effect for issuers. The interchange rule requires debit card issuers to ensure debit cards may be processed on at least two unaffiliated networks. For example, a credit union could comply by permitting personal identification number (PIN) transactions to be processed on one network and signature transactions to be processed on another, unaffiliated network. Issuers are – of course – free to enable more than two networks if they choose. Debit card issuers must be in compliance with this rule by April 1, 2012.

This requirement leads to two other questions.
  1. Would it be permissible to comply with this requirement by using regional networks?
  2. What should an issuer do if the two unaffiliated networks that it uses merge?
The Federal Reserve answered those questions in § 235.7(a)(2)-(4). 
Regional Networks. Sections (a)(2)-(3) covers this question. The proposed rule would have required issuers to use two unaffiliated networks that are both accepted on a nationwide basis. The final rule, however, is more flexible. An issuer may comply with the rule by using a regional network provided the network does not, by rule or policy restrict the operation of the network to a limited geographic area, specific merchant, or particular type of merchant. Additionally, the network must take reasonable steps to enable it to actually process the transactions it expects will be routed to it.
Subsequent Network Mergers. Section 235.7(a)(4) discusses the issue of network mergers. If the two networks a credit union uses to route transactions merge, the credit union would have six months from the official date of the merger to add a new network and, thus, meet the unaffiliated network requirement again.

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Written by Dillon Shea, Regulatory Affairs Counsel NAFCU

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