Benesyst FSA Client Alert
Federal Reserve Issues Final Rule on Debit Card Interchange Fees
On June 29, 2011 the Federal Reserve Board issued a final rule establishing standards for debit card interchange fees and prohibiting network exclusivity arrangements and routing restrictions. This rule, Regulation II (Debit Card Interchange Fees and Routing), is required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.http://www.federalreserve.gov/newsevents/press/bcreg/20110629a.htm
This rule may impact the Benesyst Benny™ Benefits Card used in conjunction with FSA, HRA and HSA programs.
While benefit cards are not specifically named, Benesyst’s card vendor and the widely held view of the industry is that benefit debit cards (including the Benesyst Benny™) meet the definitional characteristics of “general-use reloadable prepaid cards” and are therefore exempt from fee regulation.
The final rule also confirmed the exemption for small issuers (those with less than $10 billion in assets) such as Benesyst’s issuing bank, The Bancorp Bank, regardless of product type. With respect to HSAs, the final rule exempts bona-fide trust accounts from the interchange fee provisions, thereby exempting all HSAs
Impact to Benesyst Clients
The final rule exempts benefit debit cards from interchange fee regulation. While this is welcome news, the payment card networks must be willing and able to support a two-tier interchange rate structure in order for this exemption to be honored in practice.
We believe the payment card networks will honor the exemption, however the market will ultimately determine the unregulated interchange rates, and there is a risk that over time those rates could change or even collapse into the regulated structure.
On or before April 1, 2013, all debit and prepaid cards, including health and employee benefit cards, will be required to support a PIN for use at the point of sale. That will reduce interchange fees as merchants prompt consumers to use a PIN because PIN transaction interchange fees are lower than comparable transactions routed over a signature network.
While everyone remains subject to the new rules around the requirement for PIN numbers on or before April 1, 2013, it is likely that efforts will be made in the interim to enact legislation to exempt health and employee benefits cards from the PIN requirement. Benesyst will continue to provide updates regarding potential impact to your programs and your participants using the Benesyst Benny™ Benefits Card.