The clarification of the Federal Reserve Regulation II is well intended but will complicate matters for debit card issuers and consumers.

One of the outcomes of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd Frank) was the requirement for dual-message routing. The debit industry implemented controls for single-message transactions, such as those used at the point of sale, but the situation became more complex for card-not-present transactions. Due to a lack of technology advancements at the time, card-not-present transactions were assumed to be exempt from this regulation. The new clarification of this regulation sets standards for card-not-present transactions and explains what issuers must do.

While well-intended, the Federal Reserve Board’s debit regulation II clarification will complicate matters for debit card issuers and consumers in July 2023 when it is issued. The regulation creates an operational burden for issuers that will result in banks passing costs to consumers, similarly to what banks did to checking customers after the issuance of the original Durbin Amendment in 2010: increased checking fees and withdrawal of debit card loyalty rewards.