Q: If a contract is longer than one year or covers non-debit card-related activities, what methods are permissible for allocating payments and incentives for purposes of determining whether an issuer has received net compensation?
A: An issuer may use any reasonable method for allocating payments and incentives if the payments and incentives are for multi-year contracts or multi-product contracts. The reasonableness of a particular method will depend on the particular structure of the payments and incentives. For example, in some circumstances, it may be reasonable for an issuer to allocate the total payments and incentives in a multi-year contract to a calendar year pro rata based on the number of years in the contract; in other circumstances, it may be reasonable to use another basis for allocation. For a multi-product incentive payment contract, it may be reasonable for an issuer to allocate payments and incentives to debit card-related activities based on the proportion of the cards or transactions covered by the contract that are debit cards or electronic debit transactions. See paragraphs 6(b)-2.i and ii in the commentary to Regulation II. (Added September 14, 2011)
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: