The FTC recommended that the Federal Reserve Board ("FRB") adopt and expand proposed clarifications to Regulation II ("Debit Card Interchange Fees and Routing").
In a comment letter, the FTC staff supported the proposal, which would ensure that card-not-present ("CNP") transactions are classified as a "type of transaction" under existing Regulation II, and, therefore, would require that issuers enable at least two viable networks for CNP transactions. The FTC also recommended that the FRB expressly prohibit routing-based incentives by payment card networks under FRS Rule 235.7(a)(3) ("Prohibited exclusivity arrangements by networks"). The FTC argued that such incentives can lead to:
- de facto exclusivity (i.e., an issuer can create exclusivity over a type of transaction by refusing to enable features necessary for a routing choice); and
- routing inhibitions, in cases where exclusivity does not result but the incentives still reward "the issuer for a choice that should be made by the merchant."
The DOJ also expressed support for the proposed clarification, but recommended that the FRB make explicit that the proposal applies to all CNP transactions.
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