Q: Would a credit card meet the definition of debit card under Regulation II if the cardholder arranged for payments to be made on the credit card balance through preauthorized debits from an asset account?
A: It depends. The Commentary to the definition of debit card (comment 2(f).4.ii) states that if an issuer conditions the availability of a credit or charge card on the preauthorized repayment of some or all of the card balance from an account maintained by the cardholder at the issuer, such a card is considered a debit card for purposes of this part. This Commentary provision reflects the Board's concern, as discussed in the preamble to the final rule (76 Fed. Reg. 43408-9, July 20, 2011), about potential evasion of the rule through the establishment of cards that were styled as credit cards yet required the cardholder to set up an asset account from which the card charges would be paid. On the other hand, if the cardholder is not required to establish an account at the issuer to automatically repay the credit card balance, the fact that the card balance was paid via preauthorized payments from an asset account would not qualify the card as a debit card. (Added May 18, 2015).
This Q&A was obtained from FRB’s website, in a section for Regulation II (Debit Card Interchange Fees and Routing) Frequently Asked Questions, which may be found here: