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Interchange Fee Standards:
Board
of Governors of the Federal Reserve System
Small Issuer Exemption

The Federal Reserve, the central bank of the United States, provides the nation with a

Average Interchange Fee
by flexible, and stable monetary and financial system.
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Home > Payment Systems > Regulation II (Debit Card Interchange Fees and Routing)

Regulation II (Debit Card Interchange Fees and Routing)
Frequently Asked Questions About Regulation
II (Debit Card Interchange Fees and Routing)
Staff of the Board of Governors of the Federal Reserve System has
developed the following Frequently Asked Questions (FAQs) to assist
entities in complying with the Board's Regulation II. These FAQs are not
official interpretations of the Board of Governors. These FAQs illustrate
how select provisions of the regulation apply to specific situations an
entity may confront. However, they do not necessarily address all
provisions that may apply to any given situation. Staff may supplement
or revise these FAQs as necessary or appropriate in light of further
questions and experience.
§235.2 Definitions
235.2(a): Debit card
Q1. Would a credit card meet the definition of debit card under
Regulation II if the cardholder arranged for payments to be made
on the credit card balance through preauthorized debits from an
asset account?
A1. It depends. The Commentary to the definition of debit card
(comment 2(f).4.ii) states that if an issuer conditions the availability of a
credit or charge card on the preauthorized repayment of some or all of
the card balance from an account maintained by the cardholder at the
issuer, such a card is considered a debit card for purposes of this part.
This Commentary provision reflects the Board's concern, as discussed
in the preamble to the final rule (76 Fed. Reg. 43408-9, July 20, 2011),
about potential evasion of the rule through the establishment of cards
that were styled as credit cards yet required the cardholder to set up an
asset account from which the card charges would be paid. On the other
hand, if the cardholder is not required to establish an account at the

issuer to automatically repay the credit card balance, the fact that the
card balance was paid via preauthorized payments from an asset
account would not qualify the card as a debit card. (Added May 18,
2015).
Q2. Would a credit card meet the definition of debit card under
Regulation II if the credit line is secured by a deposit held in an
account at the issuer in the individual cardholder's name, but the
funds in the account are not accessible by the cardholder nor used
to repay the card balances unless the cardholder defaults on the
credit?
A2. No. For the card to be deemed a debit card, the "account" referred
to in comment 2(f).4.ii (see Q1 above) does not refer to an account that
holds a security deposit that is inaccessible to the cardholder unless and
until the cardholder defaults on card obligations. (Added May 18, 2015).
235.2(i) General-use prepaid card
Q1. For a card to be considered issued "in exchange for payment,"
must the issuer charge a fee in addition to the amount of funds
loaded onto the card?
A1. No. A card is issued "in exchange for payment" if a cardholder or
other person provides funds to load on the card. The issuer or program
manager need not charge an additional fee for issuance of the card to
meet the "in exchange for payment" standard. (Added September 14,
2011)
Q2. Is a card considered a "general-use prepaid card" if the
cardholder is not charged a fee for the card and receives the card
prior to funds being loaded on the card?
A2. Yes. A "general-use prepaid card" includes a card that is provided to
the cardholder without underlying funds and for which the issuer
authorizes use of funds that are subsequently loaded on the card.
(Added October 24, 2011)
Q3. For a card to be considered a general-use prepaid card, must
the cardholder be the person that pays for or loads funds onto the
card?
A3. No. A general-use prepaid card includes a card that is issued in
exchange for payment made by a person other than the cardholder.
(Added September 14, 2011)
Q4. Is a card considered a "general-use prepaid card" if the card
may be used to redeem multiple promotional offers loaded onto the
card that are provided by multiple unaffiliated merchants but where
each particular offer loaded onto the card is redeemable only at a
particular merchant?
A4. No. The definition of "general-use prepaid card" in § 235.2(i) of
Regulation II requires the card to be redeemable upon presentation at
multiple, unaffiliated merchants for goods or services. A card that may
be used to redeem multiple promotional offers but where each particular
offer is redeemable only at a single merchant or group of affiliated
merchants is not considered a "general-use prepaid card." (Added
October 24, 2011)

§ 235.3 Interchange Fee Standards
Q1. For purposes of § 235.3, what fees paid by a merchant or
acquirer may be passed from a network to an issuer as an
"interchange transaction fee"?
A1. As defined in § 235.2(j), an "interchange transaction fee" is a fee
paid by a merchant or acquirer for the purpose of compensating an
issuer for its involvement in an electronic debit transaction. For purposes
of the definition, the issuer that is compensated through an interchange
transaction fee is the issuer of the card used in the electronic debit
transaction for which the fee is charged. Any fee charged by a payment
card network with respect to an electronic debit transaction other than
an interchange transaction fee is a network fee (EFTA Section 920(c),
15 U.S.C. 1693o-2(c)). Such network fees that are passed on to an
issuer must be included in the calculation of net compensation for
purposes of the net compensation prohibition in § 235.6(b) of Regulation
II. (Added October 24, 2011)
§235.5 Exemptions
235.5(a) Small Issuer Exemption
Q1. If an issuer with consolidated assets of $10 billion or more as
of the end of the preceding calendar year acquires an issuer with
consolidated assets of less than $10 billion as of the end of the
preceding calendar year, by when must the acquiring issuer
comply with the interchange fee standards for transactions
initiated using cards issued by the previously exempt issuer?
A1. Board staff would not recommend that the Board take any
administrative action against institutions it supervises for noncompliance
so long as the non-exempt issuer complies with the interchange fee
standards with respect to the previously exempt cards as soon as
reasonably practicable, but generally no later than 30 days after the date
the non-exempt issuer acquires the previously exempt issuer. Section
235.5(a) exempts from the interchange fee standards issuers that hold
the account being debited and have consolidated assets of less than
$10 billion as of the end of the calendar year preceding the date of the
electronic debit transaction for which the interchange fee is charged or
received. Where an exempt issuer ceases to be a legal entity after
acquisition, the acquiring entity becomes the issuer of the previously
exempt debit cards. (Added October 24, 2011)
235.5(b) Government-Administered Payment Program Exemption
Q1. Is a card provided by a university in order to distribute Federal
or state financial aid funds to a student considered to be issued
"pursuant to a government-administered payment program"?
A1. Not necessarily. A payment program is not a "governmentadministered payment program" merely because the entity distributing
the card receives funding from a government agency. A Federal or state
financial aid program, however, would be considered "government-

administered" for purposes of § 235.5(b)'s exemption from the
interchange fee standards if the Federal or state agency making
payments to beneficiaries has agreed to permit another entity (e.g., a
college or university) to distribute payments to beneficiaries on behalf of
the government or government agency. (Added October 24, 2011)
235.5(c) General-Use Prepaid Card Exemption
Q1. Are there any restrictions on the methods that may be used to
load and reload funds onto a card in order for the card to be
eligible for the general-use reloadable prepaid card exemption?
A1. The criteria for the general-use prepaid card exemption do not
restrict the methods that cardholders or other persons may use to load
or reload funds onto a card. General-use prepaid cards are eligible for
the exemption from interchange fee standards regardless of whether
funds may be loaded onto the card using ACH, check, cash, or other
methods. However, some funds-loading arrangements may warrant
additional supervisory scrutiny to determine whether circumvention or
evasion is occurring. One example is where prepaid cards are linked to
an issuer's customers' transaction accounts such that funds may be
swept from the transaction accounts to the prepaid accounts as needed
to cover transactions. See paragraph 6(a)-2.ii of the commentary to
Regulation II. (Added September 14, 2011)
Q2. Section 235.5(c) provides that a general-use prepaid card is
exempt from the interchange fee standards if, among other things,
the card is "the only means of access to the underlying funds,
except when all remaining funds are provided to the cardholder in
a single transaction." Would a general-use prepaid card qualify for
the exemption if a cardholder is able to use information from the
card to make a payment on a merchant's website?
A2. Yes. A general-use prepaid card is eligible for the general-use
prepaid card exemption in § 235.5(c) if a cardholder is able to use the
card number to initiate a debit to funds underlying the prepaid card to
pay a merchant or other payee (such as a bill-pay provider) on the
merchant's or other payee's website, provided the card meets the other
criteria for the exemption. For example, the cardholder may enter the
card number on the merchant's or other payee's website to initiate a
one-time payment or to authorize the merchant or other payee to initiate
recurring payments using the prepaid card. (But see Q7 of this section).
(Revised May 30, 2013)
Q3. Would a general-use prepaid card qualify for the exemption in §
235.5(c) if the cardholder is able to authorize the issuer to pay third
parties with funds underlying the card through the issuer's online
card or account management system?
A3. No. If a cardholder is able to use the issuer's (or issuer's agent's)
online card or account management system to authorize the issuer to
pay a merchant or other payee from the cardholder's account or
subaccount, then the card is not the only means of access to the
underlying funds. For example, if a cardholder is able to pay a creditor
by authorizing the issuer or issuer's agent to make electronic fund

transfers out of an account, the card is not the only means of access to
the underlying funds. (Added September 14, 2011)
Q4. If a payroll card issuer provides the cardholder means other
than the card to access the employee's pay in the payroll account,
is the payroll card still considered the only means of access to the
underlying funds under § 235.5(c)(iii)?
A4. Section 235.5(c)(1)(iii) provides that a prepaid card is eligible for the
exemption even if a means of access other than the card is used to
provide all remaining funds to the cardholder in a single transaction. For
example, if a cardholder receives the entire amount underlying a payroll
card as cash or using a convenience check made out to the cardholder,
that payroll card could still qualify for the exemption so long as it meets
the other requirements in § 235.5(c)(1). A payroll card would not qualify
for the exemption, however, if the cardholder is permitted to write checks
on funds in the payroll account to payees other than the cardholder or
use other non-card means to make payments to third parties. In
addition, some states require employers to provide employees with the
full amount of their wages without any fees each pay period. A payroll
card is eligible for the exemption in § 235.5(c) if an employer provides
an employee with a non-card means to access his or her wages in the
payroll card account each pay period in order to satisfy state law
requirements applicable to the employer, provided the payroll card
meets the other criteria for the exemption. Moreover, prepaid cards
linked to an issuer's customers' transaction accounts such that funds
may be swept from the transaction accounts to the prepaid accounts
may warrant additional supervisory scrutiny to determine whether
circumvention or evasion is occurring. See paragraph 6(a)-2.ii of the
commentary to Regulation II. (Added September 14, 2011)
Q5. Cards are sometimes used to access funds in a health care
flexible spending account or other similar benefit account.
Typically, use of the funds in these accounts is limited to certain
types of transactions and the purpose for which the funds are used
is legally required to be substantiated by the plan administrator. In
some cases, substantiation may occur directly through the card
without the cardholder submitting separate documents and no
other means of access to the funds exists other than through the
card. In other cases, the cardholder may have access to the funds
through both the card and by submitting a claim to the plan
administrator. Does a card qualify for the exemption under §
235.5(c) if the cardholder may access funds from the account by
submitting a claim to the plan administrator?
A5. No. If a cardholder is able to access funds in a benefit account by
means other than a card and such alternate, non-card means of access
are not required to be provided to the cardholder under federal or state
law or regulation, the card is not the only means of access to the funds
in the account, notwithstanding the fact that federal or state law may
restrict the purposes for which the cardholder may access funds in the
account. However, if a cardholder is able to access funds in a benefit
account only through use of the card, the card may qualify for the
exemption even if the cardholder must submit separate documents to

the plan administrator in order to substantiate that the funds were used
for legally permissible transactions. (Added September 14, 2011)
Q6. Does a general-use prepaid card qualify for the exemption
under § 235.5(c) if the issuer offers the cardholder the ability to
obtain cash through the offices of a money transmitter service
business by calling the issuer to authorize access, which then
transfers money to the money transmitter service business?
A6. Such a card could qualify for the exemption under certain conditions.
A general-use prepaid card would be the only means of access to funds
underlying the card where the cardholder is able to initiate transfers out
of the account to a money transmitter service business by contacting the
issuer (or issuer's agent) via telephone and providing a card number for
purposes of identifying the cardholder's account or subaccount, provided
that only the cardholder may receive the transferred funds and the
cardholder may receive the funds only as cash. (Added October 24,
2011)
Q7. Does a general-use prepaid card qualify for the exemption
under § 235.5(c) if the issuer provides an account number and
routing number to the cardholder for purposes of loading or
facilitating loading funds onto the card through the ACH or
otherwise? Does a general-use prepaid card qualify for the
exemption if the cardholder may use the account number and
routing number to authorize debits by non-card means, such as
ACH debits, that access funds underlying the prepaid card?
A7. An issuer may provide a cardholder with an account number (which
may or may not be different from the number on the card) and a routing
number so that the cardholder may load funds (or authorize the loading
of funds) by an ACH credit transaction or otherwise (e.g., a direct
deposit from an employer or government agency), without the card
becoming ineligible for the exemption under § 235.5(c). For such a
general-use prepaid card to remain eligible for the exemption in §
235.5(c), an issuer must take steps to ensure that the cardholder does
not use the account number or routing number to access or authorize
access to the funds underlying the prepaid card through an ACH
transaction or other non-card means. The issuer may, for example,
conspicuously disclose to the cardholder that such use is prohibited. If
the issuer becomes aware that the cardholder is violating this
prohibition, however, the issuer must take further action to prevent the
cardholder from using an account number and routing number to
access, or authorize access to, funds through a debit transaction
through non-card means (e.g., an ACH debit transaction) in order for the
card remain eligible for the exemption under § 235.5(c). (Added March
13, 2013)
Q8. Does a general-use prepaid card qualify for the exemption
under § 235.5(c) if a cardholder may present the card at a branch of
the issuer to withdraw cash from the funds underlying the card?
A8. Yes. A general-use prepaid card is eligible for the general-use
prepaid card exemption in § 235.5(c) if a cardholder is able to present
the card at a branch of the issuer and withdraw cash from the funds

underlying the card, provided the cardholder is the person receiving the
cash. This is true whether the issuer sends the transaction information
through the card network or effectuates the transaction without using the
card network. (Added March 13, 2013)
Q9. If the issuer of a general-use prepaid card may settle the
prepaid card transactions with the cardholder by initiating a debit
transaction, such as an ACH debit, to another account of the
cardholder, does the card qualify for the exemption in § 235.5(c)?
A9. No. If an issuer of a general-use prepaid card may settle
transactions (either wholly or in part) with the cardholder by initiating
debit transactions to another account (as defined in § 235.2(a)) of the
cardholder instead of using prepaid funds underlying the card, the card
is issued or approved for use to access an account held by or for the
benefit of the cardholder and does not qualify for the exemption in §
235.5(c). (Added March 13, 2013)
Q10. If the issuer of a general-use prepaid card may, under
standing instructions from the cardholder, reload funds onto the
card by initiating a debit transaction, such as an ACH debit, to
another account of the cardholder, does the card qualify for the
exemption in § 235.5(c)?
A10. No. If an issuer is able to reload a prepaid card by initiating debit
transactions to another account (as defined in § 235.2(a)) of the
cardholder under standing instructions from the cardholder (e.g., if the
prepaid card balance falls below a specified amount), the card is issued
or approved for use to access an account held by or for the benefit of
the cardholder and does not qualify for the exemption in § 235.5(c).
(Added March 13, 2013)
235.5(d) Exceptions to Exemptions from the Interchange Fee
Standards
Q1. Beginning on July 21, 2012, if an ATM fee or an overdraft fee is
charged inadvertently to a cardholder of one card in a prepaid card
program, will all cards in that program lose their exemption?
A1. Not necessarily. Section 235.5(d) provides that, beginning July 21,
2012, debit card transactions initiated using a general-use prepaid card
that otherwise qualifies for the exemption under § 235.5(b) and (c) from
the interchange fee standards will no longer be exempt if certain fees
may be charged to a cardholder with respect to the debit card used to
initiate the transaction. Accordingly, if an issuer develops and
implements a policy reasonably designed to prevent charging to
cardholders the fees prohibited under § 235.5(d) and implements that
policy using procedures reasonably designed to ensure compliance,
neither the card for which the fee was charged nor the other cards in the
program will lose their exemption from the fee standards merely
because an issuer inadvertently charged a prohibited fee to a
cardholder. (Revised November 2, 2016)
Q2. Beginning on July 21, 2012, will a card lose its exemption if a
cardholder may be charged a fee for a transaction that was
declined at an ATM?

A2. Yes. Section 235.5(d) provides that debit card transactions that
otherwise qualify for the exemptions under § 235.5(b) and (c) from the
interchange fee standards will no longer be exempt if the cardholder
may be charged a fee with respect to the card for an overdraft, including
a shortage of funds or a transaction processed for an amount exceeding
the account balance. Accordingly, debit card transactions will lose the
exemptions under § 235.5(b) and (c) if the cardholder may be charged
an ATM decline fee due to a shortage of funds in the cardholder's
account at the time of an ATM transaction. (Added November 2, 2016)

§ 235.6 Prohibition on circumvention, evasion, and net
compensation
235.6(b) Prohibition on net compensation
Q1. Section 235.6(b) prohibits an issuer from receiving net
compensation from a payment card network with respect to
electronic debit transactions or debit card-related activities within a
calendar year. To determine whether an issuer has received net
compensation, must an issuer count the entire amount of a
payment or incentive received from a network or made to a network
at the time that the payment is received or made? Or, may an
issuer count payments as they are earned by the network or
issuer?
A1. An issuer may use any reasonable consistently-applied method of
allocating and accounting for payments and incentives received from a
payment card network and fees paid by the issuer to the network. For
example, an issuer may account for compensation when the
compensation is earned (i.e., on an accrual basis) rather than when the
compensation is paid (i.e., on a cash basis). (Added September 14,
2011)
Q2. The final rule becomes effective on October 1, 2011. How
should an issuer allocate payments and incentives for purposes of
determining whether the issuer received net compensation in
calendar year 2011?
A2. The prohibition on net compensation applies only to those payments
and incentives received, and fees paid, on or after October 1, 2011. If an
issuer receives an incentive payment in December 2011 for that issuer's
debit card-related activities during all of calendar 2011, the issuer may
choose a reasonable method for allocating the incentive payment
between the first 9 months of 2011 and the last 3 months of 2011.
(Added September 14, 2011)
Q3. Does compensation from contracts entered into prior to
October 1, 2011, count for purposes of the prohibition on net
compensation?
A3. Payments (including incentive payments and rebates) made by a
payment card network or issuer on or after October 1, 2011, are
included in the net compensation test, even if the payments are made
pursuant to contracts entered into prior to October 1, 2011. Issuers and

networks may have to renegotiate contracts if obligations under these
contracts would result in the issuer receiving net compensation from the
network under § 235.6(b). (Added September 14, 2011)
Q4. If a contract is longer than one year or covers non-debit cardrelated activities, what methods are permissible for allocating
payments and incentives for purposes of determining whether an
issuer has received net compensation?
A4. An issuer may use any reasonable method for allocating payments
and incentives if the payments and incentives are for multi-year
contracts or multi-product contracts. The reasonableness of a particular
method will depend on the particular structure of the payments and
incentives. For example, in some circumstances, it may be reasonable
for an issuer to allocate the total payments and incentives in a multi-year
contract to a calendar year pro rata based on the number of years in the
contract; in other circumstances, it may be reasonable to use another
basis for allocation. For a multi-product incentive payment contract, it
may be reasonable for an issuer to allocate payments and incentives to
debit card-related activities based on the proportion of the cards or
transactions covered by the contract that are debit cards or electronic
debit transactions. See paragraphs 6(b)-2.i and ii in the commentary to
Regulation II. (Added September 14, 2011)
Q5. If a payment card network rebates some or all of an issuer's
switch fees or other network processing fees (e.g., because an
issuer reached a certain transaction volume), is the rebate for the
switch fee or other processing fee excluded for purposes of
determining whether the issuer has received net compensation?
A5. In general, rebates (including those for network processing fees)
received by an issuer from a payment card network are included as
compensation for purposes of determining whether the issuer has
received net compensation, regardless of the purpose for which the
rebate is received. If, however, the network or network's affiliate
provides optional issuer-processor services performed on behalf of the
issuer, and the network or network's affiliate provides a rebate on fees
for those services, that rebate is not included for purposes of
determining whether the issuer has received net compensation. See
paragraph 6(b)-2 in the commentary to Regulation II. (Added September
14, 2011)
Q6. May a payment card network offset fees for optional services
provided to issuers related to electronic debit transactions or debit
card-related activities with payments and incentives paid to the
issuer related to electronic debit transactions or debit card-related
activities, so that, for example, no fee actually is charged to issuers
for the services?
A6. A payment card network may use any method of charging its issuers
for optional network services and distributing payments and incentives
that is reasonable given the facts and circumstances. For example, a
payment card network may charge an issuer for optional network
services and subsequently provide an incentive payment to the issuer.
Alternatively, a payment card network may offset the fees owed by the

issuer for the optional service against any incentive payments owed to
the issuer prior to charging the issuer. A payment card network's pricing
of optional services should be reasonable and should not be a means to
circumvent the prohibition on net compensation. (Added September 14,
2011)
Q7. Do payments made by a network to an issuer to compensate an
issuer for banking services provided by the issuer to the network
count for purposes of determining whether an issuer has received
net compensation?
A7. No. If an issuer acts as the network's bank, payments made by a
payment card network to an issuer for banking services (e.g.,
transaction account services) provided to the network are not
considered compensation for purposes of determining whether an issuer
has received net compensation from a payment card network. Such
payments relate to the issuer's role as the network's bank rather than to
debit card-related services provided by the issuer. (Added September
14, 2011)
Q8. Are payments from a network to an issuer for products or
services the issuer provides to the network included under the net
compensation test?
A8. Not necessarily. Except as otherwise provided in the rule and
commentary, if a network purchases from an issuer a product or service,
such as an issuer's analysis of transaction patterns across multiple
issuers, payment for those goods or services are not subject to the
prohibition on net compensation in § 235.6(b) merely because the
product or service is connected to debit cards in general. The issuer's
pricing of its services should be reasonable and should not be a means
to circumvent the interchange fee standards. (See also § 235.6(b) Q7
with respect to banking services provided by issuers to networks.) By
contrast, network payments, such as fees or other incentives or bonuses
that are specific to the issuer's debit card transactions or debit card
activities (such as marketing the network's brand of debit cards or
converting the issuer's card base to the network's brand) are subject to
the prohibition on net compensation. See comment 6(b)-2.i. (Added
October 24, 2011)
Q9. Does the net compensation test cover incentives and other
payments related to exempt debit card transactions?
A9. No. The prohibition against net compensation does not apply to
issuers or electronic debit transactions that qualify for an exemption
under § 235.5 from the interchange fee standards. See comment 6-1.
An issuer may use any reasonable method for allocating the payments
between exempt and non-exempt transactions. (Added October 24,
2011)
§ 235.7 Network Exclusivity and Routing Provisions
Q1. Does a debit card comply with the provisions in § 235.7 if the
card is enabled for processing transactions over two unaffiliated
card networks but, once the card is swiped, the transaction is
required to be authenticated using a specific authentication

technology available only through one network enabled on the
card?
A1. No. Section 235.7(b) prohibits an issuer or a network from inhibiting
the ability of any person that accepts or honors debit cards for payments
to direct the routing of electronic debit transactions for processing over
any payment card network that may process such transactions. If an
electronic debit transaction initiated using a debit card enabled for
certain authentication technology (e.g., a chip) must, once the card is
swiped at the point of sale, be processed over a specific payment card
network, that debit card does not comply with the prohibition on
merchant routing restrictions under § 235.7(b) if the merchant is unable
to direct the cardholder to authenticate the transaction so that it may be
processed over at least one other unaffiliated network enabled on the
card. (Added October 24, 2011)
Q2. Does Payment Card Network A comply with the provisions of
section 235.7 if it levies a fee on acquirers for transactions
conducted using cards that are enabled for that network but
processed over a different payment card network?
A2. No. Section 235.7(b) prohibits a payment card network from
inhibiting a merchant's ability to route or direct an electronic debit
transaction by contract, requirement, condition, penalty, or otherwise.
The practice described in Q2 inhibits routing by imposing an additional
cost on the use of a competing payment card network. This practice
would violate section 235.7 even if Payment Card Network A assessed
the fee on all transactions enabled with its brand, including transactions
processed over its own network, because the added fee increases the
cost of transactions routed over a competing network, the revenue
obtained through such fees may reduce the other fees Payment Card
Network A levies on acquirers, and the fee places a floor on the cost of
using a competing network. The practice in Q2 is unlike the example
described in the commentary, which describes a permissible
arrangement under which a payment card network offers payments or
other incentives to encourage the merchant to use that network. See
comment 7(b)-3. (Added May 18, 2015).
Q3. Must an issuer of a general-use prepaid card that is enabled for
processing transactions over a PIN network and an unaffiliated
signature network provide or have the cardholder select a PIN at
the time the prepaid card is purchased for the card to comply with
§ 235.7(a)?
A3. An issuer complies with § 235.7(a)'s prohibition on network
exclusivity only if card transactions can be processed over both
unaffiliated networks enabled on the card. If a PIN network enabled on
the card requires a cardholder to use a PIN for transactions,
transactions can be processed over that PIN network only if the
cardholder has a PIN to use for card transactions. Where an issuer
intends to meet the requirements of § 235.7(a) by enabling a PIN
network on the card, the issuer complies by providing a PIN to the
cardholder or having the cardholder select a PIN before or at the time a
merchant first prompts the cardholder to enter a PIN. The following
examples illustrate how an issuer may comply with § 235.7(a) but are

not intended to be exhaustive. An issuer may comply by activating the
card at the time of purchase and providing a PIN or having the
cardholder select a PIN at that time, or by activating the card by
telephone subsequent to purchase and providing a PIN or having the
cardholder select a PIN at the time of activation. An issuer also may
comply by activating the card at the time of purchase and having the
cardholder select a PIN the first time a merchant prompts the cardholder
to enter a PIN prior to completing the transaction. If an issuer mails a
prepaid card to a cardholder, the issuer may separately mail a PIN if the
PIN would normally be received by the cardholder within 2 business
days of the card. (Revised May 30, 2013)
Q4. After a debit card with an EMV chip is inserted into a point-ofsale terminal, some terminals prompt the cardholder to choose
between applications, one that routes to at least two unaffiliated
networks and another that routes to a single network. Does a
payment card network comply with section 235.7 of Regulation II if
it requires the merchant to allow the cardholder to make the choice
of EMV chip application, one of which routes only to a single
network?
A4. No. Section 235.7(b) of Regulation II implements the requirement in
section 920(b)(1)(B) of the Electronic Fund Transfer Act that a "payment
card network shall not, directly or through any agent, processor, or
licensed member of the network, by contract, requirement, condition,
penalty, or otherwise, inhibit the ability of any person that accepts or
honors debit cards for payments to direct the routing of electronic debit
transactions for processing over any payment card network that may
process such transactions." A payment card network inhibits a
merchant's ability to route electronic debit card transactions if it, by
network rules, standards, specifications, contractual agreements, or
otherwise, requires the merchant to allow the cardholder to make the
choice of EMV chip application on a debit card, where one application
routes only to a single network. Such a requirement is not compliant with
section 235.7 of Regulation II because it prevents the merchant from
directing the routing of electronic debit transactions. (Added November
2, 2016)

Last Update: November 02, 2016

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