Federal Trade Commission Launches Inquiry into Debit Card Transactions

The Federal Trade Commission (FTC) launched a preliminary inquiry into both Visa Inc. and Mastercard Inc. for their debit card practices. Both companies recently settled an antitrust probe with the European Union in April over their payment processing practices. The latest inquiry by the FTC is also based on concerns over whether these companies were violating antitrust laws by prohibiting merchants from using other alternate debit networks to process payments. The FTC is reaching out to larger merchants and trade organizations to probe this issue further.

Specifically, the FTC has requested Visa to voluntarily provide documents and information related to whether Visa’s actions inhibited merchant choice in the selection of debit payment networks in potential violation of the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act. Apparently, the FTC requested the same of Mastercard Inc. Both Visa and Mastercard stated that they were cooperating with the investigation.

The Durbin Amendment

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Act) was designed to regulate financial institutions and transactions to increase transparency, accountability, and increase consumer protection measures.   In response to lobbying by merchants to limit debit card swipe fees,

Illinois Democratic Senator Dick Durbin introduced a bill proposing additional changes to the Act that concerned debit card transactions. Card-issuing banks receive billions of dollars of income each year in swipe fees.

The bill’s changes required limits on the fees charged to retailers for debit card processing. The bill also required that merchants must have a choice of at least two unaffiliated networks for debit transaction routing. This bill became part of the Act in 2010.

Anticompetitive Practices

There is concern that Visa, Mastercard, and other large debit card issuers were blocking retailers from routing their mobile-wallet and tap-to-pay transactions from reaching other payment networks in violation of the Durbin Amendment. Chip cards have application identifiers, which allow merchants to route debit transactions to their networks of choice. However, mobile wallets and tap-to-pay transactions may be automatically routed to Visa and Mastercard networks without offering an alternative network. The FTC inquiry will focus on whether the Visa and Mastercard networks are prohibiting transactions that do not have application identifiers from being routed over other networks.

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