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Under pressure, Visa amends debit rules

Daniel Ray

Consumers will be more likely to make PIN-based debit purchases of low-cost items in stores and items over the Internet without having to tap in their debit cards’ PIN numbers as a result of a rule change announced Tuesday by Visa.

The transaction processing giant, under pressure from federal and state regulators, dropped a rule that treated PIN-based purchases differently from signature-based debit buys.

gao.gifConsumers may have noticed in the past year that, when using signature-based credit or debit cards, stores often don’t require a signature for purchases under a certain limit, often $25. For consumers, the announcement means people with PIN cards will also find themselves being waved through lines more often.

That may mean a slightly speedier checkout line at the drugstore. In a larger context, though, the announcement represented a win by merchants in a high-stakes battle over interchange fees — those fees, unseen by consumers, that merchants pay to process credit and debit card payments.

“Visa’s amended operating regulations overcame the competitive concerns that prompted our investigation,” said Thomas O. Barnett, Assistant Attorney General in charge of the U.S. Justice Department’s Antitrust Division said in a prepared statement. “Visa’s amended rules allow banks issuing Visa-branded debit cards to enable their customers to use the PIN debit functionality of those cards without entering a PIN. In light of Visa’s changes, there was no need for the Department to continue its investigation. However, the Department remains prepared to investigate allegations of anticompetitive conduct in this important industry.” New York, Ohio and Washington, D.C., attorneys generals had also looked into the issue.

Visa processes signature-based debit payments over its own network, and as a result, collects interchange fees. PIN-based purchases go over a separate network, which merchants say is less expensive.

By allowing the waiver on signature-based cards, but not PIN-based cards, regulators said Visa had been tilting the playing field, potentially gaining a competitive advantage.

“While Visa believes its previous rule was fair and competitive,” the company said in a press release,  “Visa is pleased that the action will resolve the regulatory investigations of Visa’s rules governing PINless debit transactions launched by the Department of Justice and these attorneys general.”

The change went into effect immediately, Visa said in its announcement. “Following this rule change, the decision on whether to enable these transactions will be made by financial institutions that issue Visa debit cards.  Today, these issuers have chosen to process approximately 80 percent of their debit transactions over the Visa network.

“Visa cardholders also trust that Visa check cards offer protections such as Visa’s Zero liability policy, streamlined dispute resolution and possibly rewards.  To avoid confusion, Visa will continue working with issuing and acquiring financial institutions to ensure that cardholders have the clear opportunity to make informed decisions about their payment choices and that those choices are honored,” the company said.

It’s the second time in the past week Visa has made an announcement regarding interchange fees. In late June, the company Visa announced that starting July 18, it is lowering transaction fees on gas purchases and easing restrictions on holds and blocks.

See related: Visa rule changes eases pain at the pump, GAO: Government pays massive credit card fees, too

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