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The Clearing House Association Urges Closure of Regulation II’s Fintech Loophole

The Clearing House Association, joined by the Bank Policy Institute and the Consumer Bankers Association, filed comments today recommending narrowly-tailored ways for the Federal Reserve Board to address the issue of large fintechs that engage in regulatory arbitrage to circumvent Regulation II’s interchange fee cap.  By maintaining a balance at exempt issuers that is less than all of the funds accessible by its debit or prepaid card customers, nonbank fintechs are able to both manage substantial amounts of customer funds while keeping a sponsor bank’s assets below the $10 billion threshold for the interchange fee cap exemption.  By clarifying through Frequently Asked Questions what it means to “hold the account” that is debited, a term of art in the Regulation, the associations believe the Federal Reserve would reduce the prevalence of this regulatory arbitrage and not need to amend the existing text of Regulation II.

To read the full comment letter click here.