Partisan FTC and DOJ Misconstrue Debit Card Landscape

Partisanship and left-wing extremism epitomize the Biden administration. This has made it exceedingly difficult for the administration to finalize a deal with moderate Democrats on the multi trillion-dollar tax-and-spend package. What is important to note though is that this partisanship extends beyond the doors of the White House and is present at every agency throughout the federal government.

In particular, the Department of Justice (DOJ) and Federal Trade Commission (FTC) are led by liberals Merrick Garland and Lina Khan, respectively. Recently DOJ and FTC filed letters in support of the Federal Reserve’s notice of proposed rulemaking, which would amend provisions of Regulation II so that certain debit card routing restrictions would apply to transactions that occur online (i.e. card-not-present transactions).   

The fact that these agencies publicly support the Federal Reserve’s rulemaking to further bolster the routing restrictions from the Durbin amendment, which is widely lauded by Democrats, is par for the course.

If officials at DOJ and FTC were nominated by a conservative Republican administration, it is unlikely they would support policy that is clearly an expansion of a federal government mandate.

Moreover, the language on routing restrictions in the Durbin amendment has been misconstrued by the Federal Reserve. The language in statute requires the Federal Reserve to issue rules that prohibit restricting “the number of payment card networks on which an electronic debit transaction may be processed.” However, statute does not authorize the Federal Reserve to write rules “to impose an affirmative obligation” on banks and credit unions to make sure that each merchant and transaction is provided with at least two unaffiliated payment networks. Clearly, the Federal Reserve is overstepping its statutory authority in its proposed rulemaking.

The DOJ and FTC’s claims that banks, credit unions, and payment card networks are actively conducting anticompetitive behavior to the detriment of merchants is false. In many cases merchants are the ones limiting routing options. Banks and credit unions cannot help it if merchants refuse to use updated and more secure technology to access payment networks.

In 2011, the Federal Reserve admitted that banks and credit unions could not be at fault if a merchant decided to not install new card processing technology, such as card reader terminals. The Federal Reserve stated that, “To the extent a merchant has chosen not to accept PIN debit, the merchant, and not the issuer or the payment card network, has restricted the available choices for routing an electronic debit transaction.”

This issue continues today. Merchants have limited payment options for consumers to cut corners while the technology for alternative payment methods for card-not-present transactions has existed for years.

Merchants “have been making a conscious decision not to adopt technologies” that would broaden payment transaction choices for card-not-present transactions.

Biden’s DOJ and FTC have it all wrong. It is not the banks, credit unions, or payment card networks that reduce competition, it is the large multi-billion-dollar merchants that prefer to cut corners than prioritize secure and efficient debit transactions.