The DoJ on Debit Routing: A Tougher Rule, Please

The U.S. Department of Justice in August lent its weight to a proposed rule from the Federal Reserve Board that would reinforce merchants’ choice of networks for e-commerce transactions arising from debit cards. At the same time, it suggested the rule could be made more stringent.

Justice’s support for the proposal came as the comment period for the Fed proposal was ending. The Fed in May opened the proposal for public comment after receiving complaints from merchants that some banks were skirting a legal requirement to offer a choice of at least two unrelated networks for processing debit transactions.

The complaints focus specifically on online transactions, contending big financial institutions haven’t enabled technology to send these payments to networks other than Visa and Mastercard. Debit transactions from computers and mobile apps have exploded in in the past year as consumers piled into e-commerce in reaction to the pandemic.

Justice framed its support for the Fed proposal as an effort to support competition in processing online debit. “There is limited competition to process online and other card-not-present debit transactions—which in 2019 accounted for over $1 trillion in transaction value,” said acting assistant attorney general Richard A. Powers of the department’s antitrust division, in a statement.  “Consistent with President Biden’s Executive Order on Promoting Competition in the American Economy, the department looks forward to working with the Board on this and other efforts to foster competition.”

Justice’s statement of support also comes with suggestions for improving on the Fed proposal. The department says the Fed “should consider whether the proposal is drafted broadly enough to capture all card-not-present transactions.”

It also suggests the Fed’s proposed rule may not go far enough. The Fed should “actively assess additional ways the proposed rule may be enhanced to increase competition for debit payment processing,” Justice’s notice says.

The Durbin Amendment to the 2010 Dodd-Frank Act requires that banks offer a choice of at least two unaffiliated networks to route merchants’ debit card transactions. Merchants, however, have long contended that choice has been largely ineffective with respect to online transactions, which are often entered without a PIN.

In these cases, merchants argue, at least some big banks have bypassed the dozen or so debit networks operating in the United States and have instead flowed the payments to Visa or Mastercard. The banks and the two national networks argue they have complied with the law.