Source: https://www.federalreserve.gov/paymentsystems/regii-faqs.htm
Timestamp: 2019-04-25 16:51:26+00:00

Document:
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.
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).
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?
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?
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?
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?
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"?
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?
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"?
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?
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?
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?
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)?
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?
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?
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?
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?
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)?
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)?
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?
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?
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?
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?
Q3. Does compensation from contracts entered into prior to October 1, 2011, count for purposes of the prohibition on net compensation?
Q4. If a contract is longer than one year or covers non-debit card-related activities, what methods are permissible for allocating payments and incentives for purposes of determining whether an issuer has received net compensation?
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?
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?
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?
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?
Q9. Does the net compensation test cover incentives and other payments related to exempt debit card transactions?
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?
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)?
Q4. After a debit card with an EMV chip is inserted into a point-of-sale 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?

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