[Federal Register Volume 79, Number 10 (Wednesday, January 15, 2014)]
[Notices]
[Pages 2659-2662]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-00489]


-----------------------------------------------------------------------

FEDERAL RESERVE SYSTEM


Agency Information Collection Activities: Announcement of Board 
Approval Under Delegated Authority and Submission to OMB

AGENCY: Board of Governors of the Federal Reserve System.

SUMMARY: Notice is hereby given of the final approval of a proposed 
information collection by the Board of Governors of the Federal Reserve 
System (Board) under OMB delegated authority, pursuant to 5 CFR 1320.16 
(OMB Regulations on Controlling Paperwork Burdens on the Public). 
Board-approved collections of information are incorporated into the 
official OMB inventory of currently approved collections of 
information. Copies of the Paperwork Reduction Act Submission, 
supporting statement and approved collection of information 
instrument(s) are placed into OMB's public docket files. The Federal 
Reserve may not conduct or sponsor, and the respondent is not required 
to respond to, an information collection that has been extended, 
revised, or implemented on or after October 1, 1995, unless it displays 
a currently valid OMB control number.

FOR FURTHER INFORMATION CONTACT: Federal Reserve Board Clearance 
Officer--Cynthia Ayouch--Office of the Chief Data Officer, Board of 
Governors of the Federal Reserve System, Washington, DC 20551 (202) 
452-3829.
    Telecommunications Device for the Deaf (TDD) users may contact 
(202) 263-4869, Board of Governors of the Federal Reserve System, 
Washington, DC 20551.
    OMB Desk Officer--Shagufta Ahmed--Office of Information and 
Regulatory Affairs, Office of Management and Budget, New Executive 
Office Building, Room 10235, 725 17th Street NW., Washington, DC 20503.
    Final approval under OMB delegated authority of the extension, with 
revision, of the following information collection:
    Report title: Interchange Transaction Fees Surveys.
    Agency form number: FR 3064a and FR 3064b.
    OMB Control number: 7100-0344.
    Frequency: FR 3064a--Biennial; FR 3064b--Annual.
    Reporters: Issuers of debit cards (FR 3064a) and payment card 
networks (FR 3064b).
    Estimated annual reporting hours: FR 3064a: 111,600 hours; FR 
3064b: 1,350 hours.
    Estimated average hours per response: FR 3064a: 200 hours; FR 
3064b: 75 hours.
    Number of respondents: FR 3064a: 558; FR 3064b: 18.
    General description of report: This information collection is 
authorized by subsection 920(a) of the Electronic Fund Transfer Act, 
which was amended by section 1075(a) of the Dodd-Frank Act. 15 U.S.C. 
1693o-2. This subsection requires the Board to disclose (on a biennial 
basis) aggregate or summary information concerning the costs incurred, 
and interchange transaction fees charged or received, by issuers or 
payment card networks in connection with the authorization, clearance 
or settlement of electronic debit transaction as the Board considers 
appropriate and in the public interest. 15 U.S.C. 1693o-2(a)(3)(B). It 
also provides the Board with authority to require issuers and payment 
card networks to provide information to enable the Board to carry out 
the provisions of the subsection. Response to these surveys is 
mandatory.
    In accordance with the statutory requirement, the Board currently 
releases aggregate or summary information from the FR 3064b survey 
responses, and, average interchange fees at the network level. However, 
as proposed, the Board will release, at the network level, the 
percentage of total number of transactions, the percentage of total 
value of transactions, and the average transaction value for exempt and 
not-exempt issuers obtained on the FR 3064b. The Board has determined 
to release this information both because it can already be calculated 
based on the information the Board currently releases on average 
interchange fees and because the Board believes the release of such 
information may be useful to issuers and merchants in choosing payment 
card networks in which to participate and to policymakers in assessing 
the effect of Regulation II on the level of interchange fees received 
by issuers over time. However, the remaining individual issuer and 
payment card information collected on these surveys will be treated as 
confidential under exemption (b)(4) of the Freedom of Information Act 
(FOIA), which protects information that, if released, would cause 
substantial harm to the competitive position of the survey respondents. 
5 U.S.C. 552(b)(4) (exempting from disclosure ``trade secrets and 
commercial or financial information obtained from a person and 
privileged or confidential'').
    Abstract: The Wall Street Reform and Consumer Protection Act of 
2010 (Dodd-Frank Act) requires the Board to disclose (on a biennial 
basis) aggregate or summary information concerning the costs incurred, 
and interchange transaction fees charged or received, by issuers or 
payment card networks in connection with the authorization, clearing, 
or settlement of electronic debit transactions as the Board considers 
appropriate or in the public interest. The data from these surveys are 
used in fulfilling that disclosure requirement. In addition, the Board 
uses data from the payment card network survey (FR 3064b) to publicly 
report on an annual basis the extent to which networks have established 
separate interchange fees for exempt and covered issuers.\1\ Finally, 
the Board uses the data from these surveys in determining whether to 
propose revisions to the interchange fee standards in Regulation II (12 
CFR Part 235). The Dodd-Frank Act provides the Board with authority to 
require debit card issuers and payment card networks to submit 
information in order to carry out provisions of the Dodd-Frank Act 
regarding interchange fee standards.
---------------------------------------------------------------------------

    \1\ Average debit card interchange fee by payment card network, 
http://www.federalreserve.gov/paymentsystems/regii-average-interchange-fee.htm.
---------------------------------------------------------------------------

    Current Actions: On October 18, 2013, the Board published a notice 
in the Federal Register (78 FR 62352) requesting public comment for 60 
days on the proposal to extend, with revision, the Interchange 
Transaction Fees Surveys. The comment period expired on December 17, 
2013. The Board received five comment letters regarding the proposed 
revisions to these surveys. The comments are summarized and addressed 
below.

[[Page 2660]]

Summary of Public Comments

    The Board received comments from one financial institution, one 
banking industry trade association, a joint letter from eight banking 
industry associations (including the one association that responded 
separately), and two payment card networks. Some general comments were 
received regarding the treatment of confidential data, time schedule, 
reporting panel, and report format. Commenters also provided input on 
how to categorize debit card transactions. In addition, one commenter 
focused on specific data items proposed for collection in the debit 
card issuer survey. The commenter asked the Board to include additional 
reporting categories within fixed and variable costs and additional 
clarification on affiliated processor costs and international fraud 
losses. The subsequent sections of this notice address the comments on 
and modifications to specific surveys.

General Comments

    The Board asked specific questions and commenters provided several 
comments that are relevant to both the debit card issuer survey (FR 
3064a) and the payment card network survey (FR 3064b). These topics 
included the reporting burden to complete the surveys, reporting panel, 
report format, usefulness of the information collected, and 
opportunities to enhance the quality, utility, and clarity of the 
information collected.
    One commenter encouraged the Board to allow completion of the 
surveys on a consolidated basis at the holding company level rather 
than at the individual affiliate level. The commenter suggested that 
requiring individual issuer responses, as opposed to holding company-
level responses, would be burdensome with little apparent benefit. The 
survey already requests respondents to provide these data at the bank 
holding company level to reduce respondent burden. Issuers will 
continue to have the opportunity to respond at the charter level if 
needed.
    Two commenters suggested that exempt issuers (those with less than 
$10 billion in assets) be added to the reporting panel and allowed to 
participate voluntarily in the debit card issuer survey.\2\ The Board 
does not believe it would be appropriate to include exempt issuer costs 
in the determination of the interchange fee standard for covered 
issuers. Moreover, because some covered issuers have small debit card 
programs, the Board already collects data on costs of small debit card 
programs through its survey of covered issuers. Further, there are 
other channels, such as certain questions contained in the payment card 
network survey (FR 3064b), to provide information on the effect of 
Regulation II on small issuers. For these reasons, the survey will not 
be expanded to cover exempt issuers.
---------------------------------------------------------------------------

    \2\ Section 235.8(b) of the Board's Regulation II requires that 
issuers covered by the interchange fee standards in Regulation II 
file reports with the Board.
---------------------------------------------------------------------------

    Two commenters requested that the Board continue to conduct follow-
up interviews with respondents after survey responses are submitted to 
improve the quality of the data received, increase the consistency of 
responses, and reconcile inconsistencies across responses. The Board 
will continue the existing follow-up process, which has worked well in 
improving the quality of the data.
    Two commenters requested that respondents be allowed to elaborate 
on their responses to particular questions. For example, issuers may 
want to elaborate on any assumptions that they had to use to calculate 
certain cost items. This flexibility can increase the quality of survey 
responses and enable the Board to check for consistency across 
respondents. The surveys currently have comment boxes that can be used 
for this purpose.
    The Board also requested comment on the cost of providing 
information and feasibility of automating the information collection. 
The Board did not receive any comments on these questions.
    In response to the Board's question on how single-message (PIN) and 
dual-message (signature) transactions should be categorized, several 
commenters suggested that the Board should not equate PIN 
authentication with single-message networks and signature 
authentication with dual-message networks. One commenter further 
suggested that the Board collect information solely on the messaging 
system of the network (single-message or dual-message) without regard 
to the methods by which transactions processed or routed on that 
network may be authenticated. The Board agrees with these comments and 
will continue to categorize debit card transactions by message type and 
deemphasize the link between message type and authentication method. 
Further, because a network may be able to process both single-message 
and dual-message transactions, the Board will clarify Question 3 in 
Section I of the Payment Card Network Survey to reflect this, and to 
collect information from the network for each message type.

Debit Card Issuer Survey (FR 3064a)

Section-by-Section Analysis
Section I: Respondent Information
    Question 3: Do you have a general-use prepaid card program?--The 
Board proposed to delete this question because it is redundant given 
that issuers with general-use prepaid card programs complete Section V. 
The Board did not receive any comments on this section. This section 
will be implemented as proposed with clarifying changes as appropriate.
Section II: All Debit Card Transactions (Including General-Use Prepaid 
Card Transactions) and Section V: General-Use Prepaid Card Transactions
    Question 1: General-use prepaid card exemption: Exempt vs. non-
exempt general-use prepaid card transactions--The Board proposed to 
modify question 1.d by deleting line item 1d.1 (Volume and Value), All 
general-use prepaid card transactions between January 1 and September 
30, 2011. As the rule went into effect on October 1, 2011, collecting 
data for this time frame was necessary to compare 2011 data before and 
after the effective date, but the split time frame is no longer 
relevant. The Board did not receive any comments on this section. This 
section will be implemented as proposed and subsequent line items will 
be renumbered.
Section II: All Debit Card Transactions, Section III: All Single-
Message (PIN) Debit Card Transactions, Section IV: All Dual-Message 
(Signature) Debit Card Transactions, and Section V: General-Use Prepaid 
Card Transactions
    Question 3: Cost of authorization, clearance, and settlement--The 
Board proposed to add questions 3e and 3f to break out the fixed and 
variable cost components for line items 3b.1 In-house costs and 3b.2 
Third-party processing fees, respectively. The Board also proposed 
adding definitions for variable and fixed costs to the instructions.\3\ 
In addition, the Board proposed to modify the instruction for Question 
3 to exclude transaction monitoring costs as part of the costs of 
authorization, clearance, and settlement. Transactions monitoring costs 
are reported in Question 5, Fraud prevention and data security costs, 
line item 5a.1 Transactions monitoring cost tied to authorization. One 
commenter stated that the variable cost/fixed cost

[[Page 2661]]

dichotomy is not an appropriate means for identifying incremental 
authorization, clearance, and settlement costs. The commenter believes 
that the definition of ``costs of authorization, clearance, and 
settlement'' fails to include all costs related to a debit card 
issuer's authorization, clearance, and settlement activities. The 
commenter recommended that the set of costs be expanded to all debit 
card costs to provide the Board a more comprehensive accounting of 
debit card program costs and put authorization, clearance, and 
settlement costs in context. The commenter provided a list of 
categories of costs that should be included and recommended that these 
categories be reported as individual cost items.
---------------------------------------------------------------------------

    \3\ Fixed costs are defined as costs that do not vary with 
changes in the number or value of transaction over the course of the 
reporting period (i.e., calendar year 2013 for this application of 
the survey).
---------------------------------------------------------------------------

    Many of the proposed categories of costs are included in various 
sections in the survey and those that are not included are costs that 
the Board did not consider as part of the interchange fee standard in 
Regulation II. Including these additional cost categories and requiring 
issuers to report at a more detailed level would not significantly 
enhance the Board's understanding of the relevant costs for Regulation 
II and would represent a significant burden to respondents. For these 
reasons, the set and format of data collected will be implemented as 
proposed.
    One commenter asserted that the treatment of affiliated processor 
costs at the cost of service to the affiliate processor rather than the 
cost to the issuer ignores common inter-affiliate cost accounting 
practices under which the issuer is charged an imputed mark-up for 
services provided by the affiliated processor. The commenter asserted 
that the proposed change would result in issuers that use affiliates 
for transaction processing services reporting lower cost data than they 
would have reported had they used an unaffiliated processor. The Board 
will modify the instructions for Question 3 to allow affiliated 
processor costs to be reported at the cost to the issuer, provided that 
the cost to the issuer is determined in a way that is consistent with 
fees that the affiliated processor would charge to an unaffiliated 
debit card issuer.
    One commenter suggested that international fraud losses be included 
as part of reported fraud losses. The commenter noted that 
international fraud losses are a material cost and are tied to domestic 
debit cards. The Board notes that international fraud losses arise from 
transactions that are outside the scope of Regulation II. As such, 
international fraud losses are analogous to ATM fraud losses, which are 
also not included. For these reasons, the survey will not be modified 
to include international fraud losses.
General Instructions
    The Board proposed to change the timing for conducting the calendar 
year 2013 survey, making the survey available by February 3, 2014, with 
responses due by March 17, 2014. Future surveys would revert to the 
original schedule (mid-February to mid-April). Two commenters 
recommended a 90-day completion period for the debit card issuer survey 
to allow ample time for internal review before the surveys are 
submitted to the Board.\4\ Given the potential need to expeditiously 
adjust the Regulation II interchange fee standard, in the event the 
Board does not prevail on appeal, the 2014 time frame will remain as 
proposed; however, the time frame to compete future year surveys will 
be increased to 90 days.
---------------------------------------------------------------------------

    \4\ To enable the Board to collect and use updated data if 
necessary to respond quickly to pending litigation regarding 
Regulation II, the Board proposed to accelerate the schedule for 
calendar year 2013 survey, making the survey available by February 
3, 2014, with responses due by March 17, 2014.
---------------------------------------------------------------------------

Payment Card Network Survey (FR 3064b)

Section-by-Section Analysis
Section I: Respondent Information
    Is your payment card network a single-message (PIN) or dual-message 
(signature) network? The Board requested comment on a payment card 
network's ability to process single-message transactions across dual-
message networks and vice versa. In addition, the Board requested 
comment on how such transactions should be categorized. As mentioned 
above, several commenters suggested that the Board not equate PIN 
authentication with single-message networks and signature 
authentication with dual-message networks in either survey. The 
commenters suggested that the Board collect information solely on the 
messaging system of the network (single-message or dual-message) 
without regard to the methods by which transactions processed or routed 
on that network may be authenticated. The Board concurs and the surveys 
will continue to categorize debit card transactions as single- or dual-
message without the inference that all messages of a given type use the 
same authentication method. In addition, the survey will collect 
information from the network for each message type.
Section II: Debit Card Transactions
    Small issuer exemption: Transactions using card of exempt vs. non-
exempt issuers--The Board proposed to revise this section by deleting 
line item 1e.1 (Volume and Value), All settled purchase transactions 
between January 1, 2011-September 30, 2011, because the timeframe is no 
longer relevant. The Board did not receive any comments on this 
section. This section will be implemented as proposed and subsequent 
line items will be renumbered.
    Transactions using card of exempt vs. non-exempt issuers (January 
1, 2011-September 30, 2011)--The Board proposed to revise this section 
by deleting line items 1f through 1f.2 as the timeframe is no longer 
relevant. The Board did not receive any comments on this section. This 
section will be implemented as proposed and subsequent line items will 
be renumbered.
    General-use prepaid card exemption: Exempt vs. non-exempt general-
use prepaid card transactions and General-use prepaid card exemption: 
Interchange fees on exempt vs. non-exempt card transactions--The Board 
proposed to revise line items 1g and 2i by requiring networks to 
allocate volume, value, and interchange fee revenue for exempt general-
use prepaid card transactions between transactions using prepaid cards 
issued by exempt (small) issuers (adding line items 1g.1.1 and 2i.1.1) 
and transactions using prepaid cards issued by non-exempt issuers 
(adding line items 1g.1.2. and 2i.1.2). Currently, payment card 
networks are required to allocate volume and value of general-use 
prepaid card transactions, and associated interchange fee revenue, 
between exempt and non-exempt general-use prepaid card transactions and 
interchange fees. Under Regulation II, a general-use prepaid card 
transaction may be exempt from the interchange fee standards either 
because the card is issued by an issuer that qualifies for the small 
issuer exemption or because the card qualifies for the prepaid card 
exemption, irrespective of the size of the issuer. The proposed break 
out of these data would allow the Board to determine which type of 
exemption applies to each exempt transaction, thus improving 
interpretation of these data. The Board did not receive any comments on 
this section. This section will be implemented as proposed.
    Small issuer exemption: Interchange fees on transactions using card 
of exempt vs. non-exempt issuers--The

[[Page 2662]]

Board proposed to revise this section by deleting line items 2g.1, All 
interchange fees paid to issuers between January 1, 2011-September 30, 
2011, as these timeframes are no longer relevant. The Board did not 
receive any comments on this section. This section will be implemented 
as proposed and subsequent line items will be renumbered.
    Small issuer exemption: Network fees received from exempt vs. non-
exempt issuers--The Board proposed to revise this section by deleting 
line items 3c.1, All network fees received from issuers that settled 
between January 1, 2011-September 30, 2011, and line items 3d through 
3d.2, as these timeframes are no longer relevant. The Board did not 
receive any comments on this section. This section will be implemented 
as proposed and subsequent line items will be renumbered.
    Small issuer exemption: Payments and incentives paid to exempt vs. 
non-exempt issuers--The Board proposed to revise this section by 
deleting line items 4c.1, All payment and incentives paid to issuers 
between January 1, 2011-September 30, 2011, and line items 4d through 
4d.2, as these timeframes are no longer relevant. The Board did not 
receive any comments on this section. This section will be implemented 
as proposed and subsequent line items will be renumbered.
General Instructions
    Response Confidentiality and Burden--The Board proposed to revise 
the confidentiality statement to indicate that the Board may release 
some information identified by network by total, or as an average: the 
percent of total number and value of transactions for exempt and non-
exempt issuers; and the average transaction value for exempt, non-
exempt, and all issuers. To date, the Board has only published this 
information in the aggregate across networks. One network commenter 
expressed concern regarding the confidentiality of survey data, stating 
that the Board's current justification does not constitute a public 
policy rationale that justifies the publication of additional non-
public and proprietary data. This information can already be 
approximated at the network level from the information the Board 
currently releases on the network's average interchange fees. The 
precise network-specific information may be useful to issuers (both 
exempt and non-exempt) and merchants in choosing payment card networks 
in which to participate and to policymakers in assessing the effect of 
Regulation II on the level of interchange fees received by exempt and 
non-exempt issuers over time. For example, the disclosure of the 
percent of total number and value of transactions for exempt and non-
exempt issuers may assist exempt issuers in identifying networks that 
may have operations focused on those issuers. For these reasons, the 
revisions to the confidentiality statement will be implemented as 
proposed.

    Board of Governors of the Federal Reserve System, January 9, 
2014.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2014-00489 Filed 1-14-14; 8:45 am]
BILLING CODE 6210-01-P