Suppose Congress approves the Dodd-Frank Act, and small issuers with less than $10 billion in assets are exempt from debit card-interchange rules the Federal Reserve Board eventually deems “reasonable and proportional.” How will merchants know whose debit cards are exempt?

“There are ways to do it, but none of them are easy,” notes Linda Perry, a former Visa Inc. executive who now operates as an independent consultant. The staffer who crafted the bill’s amendment that includes the exemption “didn’t really think it through,” she says. “I’m sure the networks are lobbying and saying, ‘there are these logistical issues, such as how do you enforce these rules?’”

One off-the-wall option would be to require issuers to note whether they are exempt on their cards. Another would be to enable processors to identify exempt issuers using their cards’ bank identification numbers, Perry notes.

While she doubts the Fed would force financial institutions to reissue cards, Perry believes identifying exempt cards using their BINs would be possible, but it would be “extremely difficult based on the current BIN structure.” Many smaller issuers that would meet the exemption threshold are agent banks and use the BINs of larger issuers, making it difficult for merchants to properly identify exempt issuers’ transactions, Perry notes.

Yet another option would be to add another “identifier” to the transaction data, preferably within an existing data field, she adds. “A new field would be very difficult for a merchant or a processor to deal with,” Perry says. “It wouldn’t be an ideal situation.”

The card networks twice a year come up with new code requirements, so acquirers and merchant processors are used to making changes and budget for them. It has become a cost of doing business, usually $1 million to $3 million per year, depending on the processor’s size, Perry says.

“From a practical perspective, acquirers don’t charge to recode every time,” Perry says. “It comes out of the profitability of the acquirer or [independent sales organization]. But as some time passes, it eventually can come out of the merchants’ pocket.”

A reconciliation conference committee approved the final version of the bill on June 25. The full House and Senate could vote on it this week.

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