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Federal Register / Vol. 86, No. 91 / Thursday, May 13, 2021 / Proposed Rules
payment card networks on which cardnot-present transactions can be processed to fewer than two unaffiliated networks.
III. Section-by-Section Analysis In light of the issues described in the previous section, the Board is proposing revisions to the commentary to Regulation II to clarify the applicability of the regulations prohibition on network exclusivity to card-not-present transactions. The Board is specifically proposing to clarify that card-notpresent transactions are a particular type of transaction for which issuers must ensure at least two unaffiliated payment card networks have been enabled. The Board is further proposing revisions to the rule and commentary to emphasize the important role of the issuer in ensuring that at least two unaffiliated payment card networks have been enabled for each debit card transaction. The Board is also proposing revisions to the commentary to standardize and clarify the use of certain terminology and clarify the requirements that Regulation II imposes on debit card issuers.
A. Section 235.7 Limitations on Payment Card Restrictions The Board is proposing to amend 235.7 of the regulation to emphasize the issuers role in configuring its debit cards to ensure that at least two unaffiliated networks have been enabled to comply with the regulations prohibition on network exclusivity.
Section 235.7a2 currently states that an issuer satisfies the prohibition on network exclusivity under 235.7a1
only if the issuer allows an electronic debit transaction to be processed on at least two unaffiliated networks, each of which does not, by rule or policy, restrict the operation of the network to a limited geographic area, specific merchant, or particular type of merchant or transaction, and each of which has taken steps reasonably designed to enable the network to process the electronic debit transactions that the network would reasonably expect will be routed to it, based on expected transaction volume. The Board is proposing amendments to this section to reflect the role of the issuer in ensuring that the enumerated capabilities of networks are, in fact, enabled.
Specifically, 235.7a2, with the proposed amendments, would provide that an issuer satisfies the requirements of 235.7a1 only if, for every particular type of transaction as well as every geographic area, specific merchant, and particular type of merchant for which the issuers debit
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card can be used to process an electronic debit transaction, the issuer has enabled at least two unaffiliated payment card networks to process the transaction. The Board does not intend these amendments as a substantive change to the section but rather as a clarification of the existing language.
B. Appendix A to Part 235Official Board Commentary on Regulation II
The Board is proposing several clarifying revisions to the commentary on 235.7. The proposed changes throughout this commentary include revisions to standardize and clarify the use of certain terminology. For example, the term enabled would be revised to enabled by the issuer, to explicitly recognize the role an issuer plays in configuring its debit cards and enabling a payment card network on a debit card, as described above. The revised terminology reflects the fact that the issuer is the entity that configures a debit card such that electronic debit transactions initiated with that card can be processed over a particular payment card network. New standardized terms would include payment card network which would replace the shorthand network or card network and method of cardholder authentication which would replace variations of authentication or authorization.
Comment 235.7a1 Scope of Restriction The Board proposes additional revisions to comment 235.7a1. This comment currently clarifies the scope of the prohibition of network exclusivity under 235.7a, including a clarification that 235.7a does not require an issuer to have two or more unaffiliated networks available for each method of cardholder authentication.
The Board proposes to update the examples of cardholder authentication methods listed in the commentary to better align with current industry practices. The proposed revisions add biometrics to the list of cardholder authentication methods in the commentary, which currently only includes signature and PIN
authentication. The Board further proposes adding or any other method of cardholder authentication that may be developed in the future to capture cardholder authentication methods that do not yet exist and that would still be captured by Regulation II if they were to be developed. The proposed revisions also recognize instances where no method of cardholder authentication is used.
Comment 235.7a2 Permitted Networks
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The Board also proposes revising comment 235.7a2. Comment 235.7a2 currently clarifies the types of network arrangements that may be used to help satisfy the requirement in 235.7a that an issuer enable two unaffiliated networks. The proposed revisions add titles to each subparagraph and make streamlining edits for ease of reference.
The proposed revisions also clarify that, for purposes of 235.7, card-notpresent debit card transactions are a particular type of transaction for which at least two unaffiliated payment card networks must be available. The Board believes this clarification is necessary in light of developments in recent years among single-message networks that have introduced capabilities to allow them to process card-not-present transactions; yet, as noted previously, information gathered by the Board suggests that certain issuers continue to enable only one dual-message payment card network for such transactions.
Finally, the Board is proposing to add a new comment 235.7a2iii to provide clear examples of how an issuer could comply with the rule by enabling various combinations of networks so that two unaffiliated payment card networks that can each process both card-present and card-not-present transactions are available. The Board is proposing additional revisions to comment 235.7a2 to further clarify the variety of scenarios in which an issuer could enable two unaffiliated payment card networks as examples of permitted arrangements under 235.7.
Comment 235.7a7 Application of Rule Regardless of Form Factor The Board proposes revising comment 235.7a7. Comment 235.7a7
currently clarifies that the network exclusivity provisions in 235.7 apply regardless of form factor. Specifically, the commentary currently provides that the prohibition on network exclusivity applies regardless of whether the debit card is issued in plastic card form and also applies to any supplemental device that is issued in connection with a plastic card, even if that plastic card fully complies with the rule. The proposed revisions replace the term form factor with means of access to better align with current industry terminology. The revisions would also add, as an example of means of access, information stored inside an e-wallet on a mobile phone or other device, to capture recent technological developments. The Board further proposes adding or another means of access that may be developed in the
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