Thursday, January 5, 2023
In a draft complaint approved by commissioners on Dec. 23, 2022, Mastercard is charged with violating the Electronic Funds Transfer Act as well as the Federal Reserve's Durbin Amendment rule set. The agency said Mastercard should be required to provide competing networks with the customer account information needed to process debit card payments—something the company has been loathed to do as debit card payments have gained in ecommerce scenarios.
"This is a victory for consumers and merchants who rely on debit card payments to operate their businesses," said Holly Vedova, director of the FTC's bureau of competition. "Congress directed the FTC to enforce this part of the Dodd-Frank Act and prevent precisely this kind of illegal behavior. We take this responsibility seriously, as demonstrated by our action today."
Regarding the consent agreement, Mastercard stated, "We can confirm that we have entered into an agreement with the Commission regarding the routing of tokenized debit card transactions at online merchants. We believe that our existing routing practices are lawful and have always provided choice to merchants. We will continue the work to update our processes to comply with the consent order and provide even greater choice."
The FTC's complaint, along with Mastercard's consent agreement, is subject to a 30-day public comment period. But this is a formality, as most FTC complaints and consent agreements go into effect as approved by the full board of commissioners immediately following a comment period. Violations of such agreements carry civil penalties up to $46,500 per violation.
The FTC's complaint comes on the heels of a Federal Reserve Board decision to clarify that Durbin Amendment debit card routing rules apply to ecommerce as well as card-present transactions.
The Durbin Amendment to the Dodd-Frank Act, as detailed in the Fed's Regulation II, mandates that merchants be given a choice between two unaffiliated networks to process debit card payments. That was easy enough in the immediate aftermath of the edict, when most debit card payments were at brick-and-mortar establishments. But it became more complicated as debit card payments migrated to card-not-present environments.
Regional EFT networks, like PULSE and Shazam, have developed technologies (like PINless debit) that accommodate the processing of debit card payments for ecommerce and other CNP merchants. Card issuers and the card brands, however, have been criticized for slow walking support for network choice. This, in turn, led the Fed to issue its clarification, with an implementation date of July 1, 2023.
The FTC, in a statement accompanying it complaint, said Mastercard has been "flouting the law" with policies that block merchants from routing ecommerce debit card payments through lower-cost regional EFT networks. The Commission alleged that Mastercard effectively does this by tokenizing customer account and transaction information and then refusing to detokenize the information for competing networks.
The FTC order specifically addresses Mastercard's refusal to provide conversion services for ewallet debit transactions, but said the order applies to all ecommerce debit card payments. The order also bans Mastercard from taking any action to prevent competitors from providing their own token services, or to offer tokens on Mastercard-branded debit cards.
Mastercard stated that while it is taking the requisite steps to bring the FTC matter to a close, "there should be no question that tokenized transactions provide an increased level of protection to both consumers and merchants. This focus on security guides our efforts in a highly competitive market and provides the incentive for us to continue investing in innovations that promote the peace of mind every person expects."
While the FTC's complaint and consent agreement are specific to Mastercard, the Commission, as well as the Department of Justice has had Visa under investigation for similar reasons.
An FTC spokesperson declined to answer questions about whether a similar complaint against Visa was forthcoming. Doug Kantor, general counsel at the National Association of Convenience Stores, in an interview published in December by Forbes magazine, suggested Mastercard came first because of the degree to which it flouted the Durbin Amendment requirement. "Mastercard has been particularly egregious in preventing merchants from using other networks," he said.
In a statement issued by the Merchants Payments Coalition, Kantor praised the FTC's action. "More than a decade after debit reform became law, it is well past time for Mastercard and also Visa and major banks to drop all of their efforts to undermine debit card competition. We look forward to additional enforcement actions to ensure that happens," he said. Kantor is a member of the MPC's executive committee. 
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