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Federal Register / Vol. 86, No. 91 / Thursday, May 13, 2021 / Proposed Rules
receipts of $41.5 million or less.22
According to Call Reports and other Board reports, there were approximately 472 state member banks, 2,925 bank holding companies, 132 savings and loan holding companies, and 16 Edge and agreement corporations that are small entities.23
As discussed in preceding sections, the proposed amendments are intended to clarify the regulations existing prohibition on network exclusivity, and the Board does not intend these proposed amendments to be an expansion of coverage to any additional small entities that were not already subject to the rule. For these reasons, the Board believes that this proposed rule will not have a significant economic impact on a substantial number of small entities. The Board welcomes comment on all aspects of its analysis. In particular, the Board requests that commenters describe the nature of any impact on small entities and provide empirical data to illustrate and support the extent of the impact.
D. Solicitation of Comments of Use of Plain Language Section 722 of the Gramm-LeachBliley Act Pub. L. 106102, 113 Stat.
1338, 1471, 12 U.S.C. 4809 requires the federal banking agencies to use plain language in all proposed and final rules published after January 1, 2000. The Board has sought to present the proposed rule in a simple and straightforward manner and invites comment on the use of plain language and whether any part of the proposed rule could be more clearly stated.
List of Subjects in 12 CFR Part 235
Banks, banking, Debit card routing, Electronic debit transactions, Interchange transaction fees.
Authority and Issuance For the reasons set forth in the preamble, the Board is proposing to amend Regulation II, 12 CFR part 235, as follows:
PART 235DEBIT CARD
INTERCHANGE FEES AND ROUTING
REGULATION II
1. The authority citation for part 235
continues to read as follows:

Authority: 15 U.S.C. 1693o2.
22 See 13 CFR 121.201; 84 FR 34261 July 18, 2019.
23 State member bank data are derived from March 31, 2020 Call Reports. Data for bank holding companies and savings and loan holding companies are derived from the June 30, 2020, FR Y9C and FR Y9SP. Data for Edge and agreement corporations are derived from the December 31, 2019 and March 31, 2020, FR2086b.

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2. Section 235.7 is amended by revising paragraph a2 to read as follows:

235.7 Limitations on payment card restrictions.

a
2 Permitted arrangements. An issuer satisfies the requirements of paragraph a1 of this section only if, for every geographic area, specific merchant, particular type of merchant, and particular type of transaction for which the issuers debit card can be used to process an electronic debit transaction, such issuer enables at least two unaffiliated payment card networks to process an electronic debit transaction, and where each of these networks has taken steps reasonably designed to be able to process the electronic debit transactions that it would reasonably expect will be routed to it, based on expected transaction volume.

3. Amend Appendix A to Part 235
Official Board Commentary on Regulation II by:
a. Revising paragraph 7a;
b. Revising paragraphs 7b1., b2, and b5.
The revisions read as follows:
Appendix A to Part 235Official Board Commentary on Regulation II

Section 235.7
Restrictions

Limitations on Payment Card

7a Prohibition on Network Exclusivity 1. Scope of restriction. Section 235.7a requires an issuer to configure each of its debit cards so that each electronic debit transaction initiated with such card can be processed on at least two unaffiliated payment card networks. In particular, section 235.7a requires this condition to be satisfied for every geographic area, specific merchant, particular type of merchant, and particular type of transaction for which the issuers debit card can be used to process an electronic debit transaction. As long as the condition is satisfied for each such case, 235.7a does not require the condition to be satisfied for each method of cardholder authentication e.g., signature, PIN, biometrics, any other method of cardholder authentication that may be developed in the future, or the lack of a method of cardholder authentication. For example, it is sufficient for an issuer to issue a debit card that can process signature-authenticated transactions only over one payment card network and PIN-authenticated transactions only over another payment card network, as long as the two payment card networks are not affiliated and each network can be used to process electronic debit transactions for every geographic area, specific merchant, particular type of merchant, and particular type of transaction for which the issuers debit card
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can be used to process an electronic debit transaction.
2. Permitted networks.
i. Network volume capabilities. A payment card network could be used to satisfy the requirement that an issuer enable two unaffiliated payment card networks for each electronic debit transaction if the network was either a capable of processing the volume of electronic debit transactions that it would reasonably expect to be routed to it or b willing to expand its capabilities to meet such expected transaction volume. If, however, the networks policy or practice is to limit such expansion, it would not qualify as one of the two unaffiliated payment card networks.
ii. Reasonable volume expectations. One of the steps a payment card network can take to form a reasonable expectation of its transaction volume is to consider factors such as the number of cards expected to be issued that are enabled by an issuer on the network and expected card usage patterns.
iii. Examples of permitted arrangements.
For every geographic area e.g., New York State, specific merchant e.g., a specific fast food restaurant chain, particular type of merchant e.g., fast food restaurants, and particular type of transaction e.g., card-notpresent transaction for which the issuers debit card can be used to process an electronic debit transaction, an issuer must enable at least two unaffiliated payment card networks, but those payment card networks do not necessarily have to be the same two payment card networks for every transaction.
A. Geographic area: An issuer complies with the rule only if, for every geographic area in which the issuers debit card can be used to process an electronic debit transaction, the issuer enables at least two unaffiliated payment card networks. For example, an issuer could comply with the rule by enabling two unaffiliated payment card networks that can each process transactions in all 50 U.S. states.
Alternatively, the issuer could comply with the rule by enabling three unaffiliated payment card networks, A, B, and C, where network A can process transactions in all 50
U.S. states, network B can process transactions in the 48 contiguous United States, and network C can process transactions in Alaska and Hawaii.
B. Particular type of transaction: An issuer complies with the rule only if, for every particular type of transaction for which the issuers debit card can be used to process an electronic debit transaction, the issuer enables at least two unaffiliated payment card networks. For example, an issuer could comply with the rule by enabling two unaffiliated payment card networks that can each process both card-present and card-notpresent transactions. Alternatively, the issuer could comply with the rule by enabling three unaffiliated payment card networks, A, B, and C, where network A can process both card-present and card-not-present transactions, network B can process cardpresent transactions, and network C can process card-not-present transactions.
3. Examples of prohibited network restrictions on an issuers ability to contract with other payment card networks. The
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