Park City, Utah — Banks are asking for more data from card networks, as they attempt to comply with new regulations capping debit card interchange fees.
Candace Davis, associate general counsel at Capital One Financial Corp., said Monday that the McLean, Va., bank has asked the card networks to make more data available on a regular basis about the transactions processed under the new fee caps.
"From internal banks' perspective, this involves a combination of bank monitoring and testing, so we can make sure the amounts [of fees per transaction] we're receiving are not greater than the amounts we're supposed to receive under the rule," Davis said Monday during a panel discussion at the American Bar Association's
Davis said issuers "need to be comfortable" that their contracts with card networks "protect the banks."
Starting in October, new Federal Reserve Board rules capped the fees that banks can charge merchants every time their customers buy things with debit cards. The Fed capped those fees at about 24 cents per transaction, as part of the so-called Durbin amendment to the Dodd-Frank Act. Before the law regulated debit interchange fees, they had averaged about 44 cents per transaction.
The Durbin amendment is also changing the structures of business agreements between the banks that issue debit cards and the networks, including Visa Inc. and MasterCard Inc., that process debit transactions, Davis told the panel audience.
The restricted interchange levels now mean that "the structure [of a contract] can make a difference," she said, so issuers are "unpeeling the layers of these agreements in place today."
Dena Milligan, an attorney with the Federal Reserve, said the agency is in the process of developing guidance and procedures for its examiners, as they verify that banks are complying with all the Durbin requirements. Milligan and Davis spoke on the same panel about the implementation of the final Durbin rule.
"The rule itself is complicated," Milligan said. "To try to boil it down to something simple for examiners is a complicated process."
She added that the Fed has been inundated with questions from banks about how to comply with Durbin.
Two hours after the board announced the final rule, "we received the first question and the questions have not stopped coming," Milligan said. "We're receiving information from issuers in a panic state sometimes."
The Fed is in the process of updating questions and answers on its web site, which were last updated in October.
"We have tried to address the 'net compensation' rule and how an issuer can allocate and charge for different fees and incentives," Milligan said, referring to a provision of the Fed's rules that prohibits networks from paying banks lump sums, or "net compensation," as a way to circumvent the fee caps.
"These are very complicated contracts and agreements and there are many different incentives provided by networks to issuers. It's very difficult to say what is in and what is out from the net compensation test," Milligan said.
Another part of the Durbin amendment restricted banks from signing or maintaining exclusive debit-processing deals with networks. Now issuers must have agreements with at least two networks to process debit transactions on every card — a relatively complicated arrangement that is causing banks some headaches.
Davis said it takes a lot of time to receive and compare proposals from different networks.
"You're also thinking about acceptance by merchants," she said. "Ideally you want to negotiate everything together, which is difficult given the ambiguity" of the rule.
