FRB Clarifies Regulation II Regarding Card-Not-Present Debit Transactions

The changes relate to the growth in online commerce, which has increased the volume of these types of transactions.

5/18/2021

The Federal Reserve Board released proposed revisions to Regulation II to clarify that card-not-present debit card transactions must have two unaffiliated payment card networks available. The changes are related to the growth in online commerce which increased the volume of card-not-present debit card transactions.

Most of the clarification comes from changes to 235.7 and its associated commentary, which prohibits network exclusivity and routing restrictions.

The new wording reads, “(2) Permitted arrangements. An issuer satisfies the requirements of paragraph (a)(1) of this section only if, for every geographic area, specific merchant, particular type of merchant, and particular type of transaction for which the issuer’s debit card can be used to process an electronic debit transaction, such issuer enables at least two unaffiliated payment card networks to process an electronic debit transaction, and where each of these networks has taken steps reasonably designed to be able to process the electronic debit transactions that it would reasonably expect will be routed to it, based on expected transaction volume”

Question of the Week

Q. Are there any IRS reporting requirements if the credit union plans to give each new member a $25 cash gift in connection with opening a new share deposit account?

A. Yes. A cash gift pair or credited to a member in relation to the opening of a credit union deposit account is considered interest. When the interest paid to the member by credit union (or the fair market value of merchandise given) exceeds $10 within a calendar year, a 1099-INT is required. Therefore, the credit union would need to complete form 1099-INT for each member who received the $25 cash gift.

Related Links

IRS Code 1.6049-5
IRS Form 1099-INT

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OFAC has updated the SDN list as of May 17. The last update prior to this was April 30.

Questions? Contact the Compliance Hotline: 1.800.546.4465; [email protected].