Merchant Card Acceptance changes under the Dodd-Frank Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act contains two provisions that impact card acceptance by US merchants:

  • Using discounts to incentivize preferred payment types
  • Setting thresholds for the acceptance of credit cards for payment.

These items do not have explicit “in force” dates, so should be effective now that the bill was signed into law on July 21, 2010.

Under the law, payment card networks are restricted from limiting merchants’ ability to offer discounts to incentivize customers to use payment types preferred by the merchants. Merchants would have legal protection under the law to offer customers discounts to pay with cash, check, or debit instead of a credit card. Merchants would not be able to offer a discount for payment with one card brand instead of another, or by cards issued by one issuer instead of another issuer.

Merchants are also able to set a minimum transaction threshold for credit card transactions only. The minimum amount must not exceed $10.00 (a merchant could set a smaller minimum if they wish). The law allows merchants who are federal agencies or institutions of higher education to set maximum transaction amounts on credit card transactions. Merchants should be cautioned that minimum and maximum transaction amounts do not apply to debit card transactions under this law, and that the card associations can still cite violations of the regulations for debit card transactions.

The Fed to write more rules…

The Dodd-Frank Act also gives the Federal Reserve Board oversight and rulemaking powers for debit Interchange and debit network routing.  The Federal Reserve Board’s interpretation and clarification of the language of the Act is still forthcoming, and the rules set by the Federal Reserve Board will determine the full effect of the Dodd-Frank Act.

Under the Dodd-Frank Act, the Federal Reserve Board has the responsibility to ensure that debit interchange fees are “reasonable and proportional” to the cost incurred by the issuer or payment card network. This oversight applies to all debit networks in the USA, to both PIN and Signature debit, Consumer and Small Business—but does not apply to issuers with less than $10B in assets or for reloadable prepaid and government-administered debit card programs.  The Federal Reserve Board is allowed to consider the costs of fraud management and prevention expenses in determining what are “reasonable and proportional” costs. This section’s impact could vary widely, depending on the Fed’s interpretation and rulemaking. The Fed has 9 months to write rules, and this section is to be in force on July 21, 2011.

The Federal Reserve Board will also be responsible for overseeing the Dodd-Frank Act’s requirements that all debit cards operate on at least two competing networks and that any person who accepts debit cards as payment have the ability to direct the transaction to the preferred debit network. The Fed has up to a year for rulemaking for this provision.

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