	Introduction

The United States has seen continued growth of electronic card payments (and a simultaneous decrease in check payments). From 2009 through 2012, debit card transactions have outpaced other payment forms. When a consumer uses a debit card in a transaction, the merchant pays a "swipe" fee, also known as the interchange fee. The interchange fee is paid to the consumer's bank that issued the debit card, covering the bank's costs to facilitate the transaction. Section 1075 of the Consumer Financial Protection Act of 2010 (Title X of P.L. 111-203 , the Dodd-Frank Wall Street Reform and Consumer Protection Act), known as the Durbin Amendment, authorizes the Federal Reserve Board to mandate regulations to ensure that any interchange transaction fee received by a debit card issuer is reasonable and proportional to the cost incurred by the issuer. The Durbin Amendment allows the Federal Reserve to consider the authorization, clearance, and settlement costs of each transaction when setting the interchange fee. The Durbin Amendment allows the interchange fee to be adjusted for costs incurred by debit card issuers to prevent fraud. By statute, debit card issuers with less than $10 billion in assets are exempt from the regulation, which means that smaller financial institutions may receive a larger interchange fee than larger issuers. The Durbin Amendment also prohibits network providers (Visa, MasterCard, etc.) and debit card issuers from imposing restrictions that would override a merchant's choice of the network provider through which to route transactions. On June 29, 2011, the Federal Reserve issued a final rule implementing the Durbin Amendment by Regulation II, which includes a cap on the interchange fee for large issuers. The final rule went into effect on October 1, 2011. H.R. 10 , the Financial CHOICE Act of 2017, would repeal the Durbin Amendment. Specifically, Section 735 of the Financial CHOICE Act would repeal Section 1075 of the Consumer Financial Protection Act of 2010. On May 4, 2017, H.R. 10 was ordered to be reported by the House Financial Services Committee. Implementation of Regulation II

On June 29, 2011, the Federal Reserve issued Regulation II, a final rule, which capped the interchange fee received by large issuers (with $10 billion or more in assets) to 21 cents plus 0.05% of the transaction. Implications and Recent Observations

Economists have questioned the sustainability of a two-tiered interchange pricing system over time. Debit card issuers covered by Regulation II had expected to lose interchange fee income under the regulated cap, but the evidence has been uneven particularly for those institutions that process large volumes of debit card operations. Merchants that were paying fees above the regu lated interchange fee had expected to benefit from the rule.
The United States has seen continued growth of electronic card payments (and a simultaneous decrease in check payments). From 2009 through 2012, debit card transactions have outpaced other payment forms. When a consumer uses a debit card in a transaction, the merchant pays a "swipe" fee, which is also known as the interchange fee. The interchange fee is paid to the card-issuing bank (i.e., the consumer's bank that issued the debit card) as compensation for facilitating the transaction. Section 1075 of the Consumer Financial Protection Act of 2010 (or Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111-203), also known as the Durbin Amendment, authorizes the Federal Reserve Board to prescribe regulations to ensure that the amount of any interchange transaction fee received by a debit card issuer is reasonable and proportional to the cost incurred by the issuer.
The Federal Reserve may consider the authorization, clearance, and settlement costs of each transaction when it sets the interchange fee. The Durbin Amendment allows the interchange fee to be adjusted for costs incurred by debit card issuers to prevent fraud. Debit card issuers with less than $10 billion in assets are exempt by statute from the regulation, which means that smaller financial institutions may receive a larger interchange fee than larger issuers. The legislation also prohibits network providers (e.g., Visa and MasterCard) and debit card issuers from imposing restrictions that would override a merchant's choice of the network provider through which to route transactions.
On June 29, 2011, the Federal Reserve issued a final rule implementing the Durbin Amendment by Regulation II, which includes a cap of 21 cents plus 0.05% of the transaction (and an additional 1 cent to account for fraud protection costs) on the interchange fee for large issuers. The rule went into effect on October 1, 2011. Merchants expected to benefit from the Durbin Amendment by having to pay a lower swipe fee. Large debit card issuers expected to lose revenue under the regulated cap. Many small debit card issuers that were exempt from the rule had also opposed the Durbin Amendment given concerns about the feasibility of a sustainable two-tiered interchange pricing system. Since implementation of the rule, merchants have seen a limited and unequal impact on the amount they pay in swipe fees. Likewise, the impact of Regulation II has been uneven for covered institutions. Institutions not covered by the Regulation II have reportedly observed minimal change in revenues generated by debit transactions.
H.R. 10, the Financial CHOICE Act of 2017, would repeal the Durbin Amendment. Specifically, Section 735 of the Financial CHOICE Act would repeal Section 1075 of the Consumer Financial Protection Act of 2010. On May 4, 2017, H.R. 10 was ordered to be reported by the House Financial Services Committee.