How the “Act” will affect your Credit Card Processing
On June 21, 2010 Congress approved new regulations that will change credit card processing in America as we have known it since its inception in the 1960’s. Included in the Restoring American Financial Stability Act of 2010 (the “Act”), the regulations allow the Federal Reserve to cap debit card interchange at a level that’s “reasonable and proportional” to the cost of processing debit card transactions. Before retailers can accept credit cards they must apply for a merchant account. All Merchant accounts include contract terms which will be changed by the Act.
Since debit cards represent the majority of transactions in the US, the impact on merchant services via radical changes to the merchant account pricing and terms via this new government intervention is potentially significant, though difficult to predict.
Key Elements of the Act are:
- Merchants may choose to decline accepting credit and debit cards for purchases under $10.
- All debit cards will be required to link to at least one other back-end merchant services processing network besides the one owned by the card’s brand.
- Fraud prevention is to be considered when setting the rates, which may yield interchange caps that vary depending on merchant account type.
- The government has one year to come up with the new rates.
- Debit cards issued by smaller banks (assets under $10 billion) are exempt from the Act.
Some experts anticipate negative repercussions on merchant credit card processing, predicting that credit card processing banks will compensate for reduction in interchange by charging new merchant account fees and more merchant service expenses.
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