Rules and regulations often come up with our podcast guests, but it’s been years since we dedicated an entire episode to the topic.

Kicking off a series of regulation-related episodes, Duncan Douglass, payments attorney and Partner at Alston & Bird LLP, joins Chris Uriarte and Samantha Gordon to turn the confusing and sometimes tedious topic of US payments regulation into an entertaining and enlightening update.

The conversation begins with who actually regulates payments in the US and how US payments oversight differs from the UK and EU, then flows into developments on current regulatory topics:

• Ongoing Reg II/Durbin litigation relating to interchange
• The Fed’s 2023 proposed debit cap reduction
• Latest preliminary approval of the Visa/Mastercard merchant settlement
• Credit Card Competition Act’s status
• Illinois’s IFPA delay, and practical challenges of state-by-state rules
• Surcharging, and operational complexities across network rules and state laws
• GENIUS Act stablecoin issues
• Early rule questions around agentic commerce

 

Watch the full episode on YouTube: 

 

 

 

Episode Transcript

Chris Uriarte: And welcome to Payments on Fire. I’m Chris Uriarte, a partner at Glenbrook, and it’s great to have you back with us for another episode today. But before we get started, I want to remind you that our famous Glenbrook Partners Payments Boot Camp is coming back live again in New York City, and this time it’s happening on September 29th and September 30th, and that’s going to be followed by a very interesting Advanced Payment workshop on October 1st. So if you’re dedicated to enhancing your professional education this year, whether you’re new to the industry or whether you’re an old-timer like some of us on the podcast today, we hope to see you there. If you register by July 29th, you’ll get an automatic 10% discount. So check out the details at glenbrook.com.

And also for our listeners today, I want to remind you that not only are we available through our usual audio podcast channels, but there’s a video version of this that you could access through glenbrook.com, through the Payments on Fire YouTube channel. We’re also linked from the Glenbrook Partners YouTube channel. And Samantha, it’s good to see you in person. Good to have you on video here. Samantha Gordon, Senior Engagement Manager here at Glenbrook, is my co-host today. Hey, Sam. How are you?

Samantha Gordon: Nice to be here today.

Chris Uriarte: Yeah, great to have you with us. So Sam, you and I, we do a lot of global work with our clients dealing with a lot of complex issues, and it seems regardless of the topic, regulation always comes into play in our conversations and our work with our clients, right? So I’m really excited that we’re kicking off a series here at Payments on Fire.

We’re going to be dealing with regulatory issues in payments around the globe. So can’t wait for this. And, you know, Sam, I don’t think you and I have spent any hours in law school at all on any of this.

Samantha Gordon: Zero between us.

Chris Uriarte: Zero between us. But the good news is our guest today, Duncan Douglass, who’s a partner from the global law firm of Alston & Bird, is here to join us.

Hey, Duncan, how are you?

Duncan Douglass: I’m good, Chris and Sam. Thanks for having me.

Chris Uriarte: Yeah, great to have you with us today, and this is a great way to get us kicked off on this series here. We should just note, I think we’ve talked about this before, Sam, on the episodes that we’ve got this forum that’s been going for about 20 years or so called the Merchant Payment Roundtable, and this is an invite-only forum that features some of the largest merchants around the globe.

We do it in the US, and we do it in Europe. We meet four times a year, twice in the US, twice in Europe. We talk about all the hottest things in payments, and payments regulation is such an important topic to these merchants that we actually spend a few hours just dedicated to what’s going on with regulations, card network rules, things along those lines.

And we are happy to have Duncan with us today because not only is he an expert in this area, but he’s also sits in that forum with our merchants. So Duncan, it’s been great having you with us through the last couple years with the Merchant Payment Roundtable, but I don’t think you’ve been on Payments on Fire before. So typically we kick this off with our first-time guests by asking the question: how did you wind up in this crazy payments industry of ours?

I’m sure there wasn’t a payments track when you went to law school, so how did you get into this?

Duncan Douglass: Yeah. So, well, there was. There wasn’t a payments track, but there are payments co- and this is back, you know, Fred Flintstone era, right? There were payments courses, but it was not what anybody that comes to meetings and participates, probably listens to your podcast, watches the video, attends your events likely thought of.

Because it was all checks and wires, right? And those are still important, right? Those are still important, but it was really a UCC, a Uniform Commercial Code class, right? Which is about check writers and depositors and check cashers and then wire transfers and banks taking deposits and checks and things like that.

It was literally, I took a year of it, and that did not inspire me. Not that I don’t love checks and wires, but that was not what inspired me to move into this area of practice. The thing I love about it, the way I got into it is, I started as a sort of banking lawyer in a broader financial services group.

I’ve been at this law firm since, I worked for a judge for a year, and then I’ve been at this law firm since, 25 years since then. Started in a financial services group, kind of doing broader-based banking stuff. And within a year or two of being here, was really attracted to the technology side of what we did.

And so started working with some financial institution clients as well as technology vendors to financial institution clients. Worked on some of the very first online bill pay solutions that banks bought from like CheckFree way back in the day, the like.

And then started working with some of the technology providers. And of course, you can’t do that without being up on all of the regulatory events and occurrences in the space. And so within a year of starting practice, I started doing that. And then with a year of that, that was pretty much all I did. I became the guy that was, “Oh, well, you know, Duncan knows. Go talk to him. He’s the payments guy.”

And it’s just sort of kept rolling downhill from there. But I love the product development. I love the regulatory piece. There’s a transactional piece. There’s a lot of sort of strategic advisory components to this. That’s what you were saying, that, you know, Chris, you and Sam didn’t go to law school, but you know a tremendous amount of payments law just because you have to, yeah, to do what you do.

And likewise, there’s just not that, there’s a lot of overlap between what you do as a payments lawyer and, and what you guys do in your sort of consulting and advisory business.

Chris Uriarte: Yeah, the funny thing is, and I swear this whole episode is not meant to be an advertisement for our boot camp, but the funny thing is, when we do our boot camps, we do a profile of all the, what we’ll call sort of the systematically important payment systems in the US and in other parts of the world. And when I first started, I think I did my first, or moderated or led my first Glenbrook Boot Camp back in 2017, so nine years ago now. We used to do sort of equal amount of time with wires and checks in addition to, of course, cards and ACH and all those other things. These days, we still do a lot on wires because as you know, there’s still trillions of dollars that are moving on wires, and it’s really, really important. Checks these days, unfortunately, just a footnote in our agenda for a boot camp. Interesting to understand sort of where they tie into the system, but they’re still around in the US. They’re

Duncan Douglass: not going away. And sadly, they are, there was a, we had sort of a U-shape. You know, I first started back in the Stone Ages, we had a lot of check and wire issues, and then that fell off. But with the incidence of fraud, so much fraud is focused on check and wires today with account takeover and business email compromise because everything is sort of moved to digital.

It’s easier to trick people, right, into authorizing or initiating payments they didn’t mean to, or to wash checks. And those are sort of legacy systems, so it’s a little bit easier to sometimes perpetrate fraud in those systems. So we’re back to a lot of those questions ’cause they also tend to be high dollar, right? You get wires, you can move a lot of money in a hurry through wires. um, uh

Chris Uriarte: Of course. Yeah, absolutely. Yeah. So before we get into the meat of today’s conversation, I want to ask you a very, a simple question, very basic question, but I think it’s really important to kind of ground this with our audience. Like, what does a payments attorney actually do every day? Like, what type of clients do you serve? What are the common things that you help clients with? Because I think, like you had said, you started in the banking practice, and I think sometimes folks maybe will lump together sort of the banking expertise and the payments expertise. But we know that there is, you know, payments is a very, very unique niche area within the world of banking, so it does require this unique expertise specific to payments.

What do you do when you come into the office at 9:00 AM every morning, you have your first cup of coffee? What are you doing with your clients on a daily basis?

Duncan Douglass: So, let’s see, 9:00 AM is a good day. And, you know, a little bit earlier today than that, but it’s varied, and I love that about it, right? So it is, to your point, Chris, it is highly specialized in a very specific, area and industry, but it varies. So my practice is part product design and consulting in the sense of, I don’t say to a client, a fintech client, “Hey, here’s what your next product ought to be, and here’s why, and here’s the total addressable market,” and things like that. I leave that to other folks who have business degrees and the like.

But they will come and say, “Hey, I’ve got a new product that we’re developing, and can you look it over? Can you look over the PowerPoint? Can you look over the sort of the way we’re looking at marketing, who’s our client base, and help us understand where we may have risk exposure from a compliance perspective.”

Or, We’re going to partner with this third party or these third parties in developing this product, whether that’s initial construction, whether that’s ongoing operation, whether that’s marketing. Help us understand, you know, help us negotiate those agreements. We want to protect our interests, but we also want to make sure that we’re not exposing ourselves unnecessarily to regulatory exposure because we’re not putting in place the right controls, the controls we need to manage the product.”

So there’s that sort of product consultancy from the legal side. That I may, from nine to ten I may have a call about that or be looking at somebody’s schematics or documents. And then the next hour it may be a call from somebody who says, or a meeting about a crisis situation, right? They’ve had a massive, whether it’s a commercial client, a merchant or another commercial client, whether it’s a bank who says, “You know, we’ve had a massive fraud and we need your help understanding what are our rights. Where are we exposed? Are we gonna be able to recover these funds? Do we have to find the wrongdoer? If not, is there somebody else that’s really responsible?”

And then the next, it may be somebody who says, “What’s up with this Reg II stuff? And I’m hearing a lot of news about three-party systems and folks maybe not being subject to the Durbin cap, and I’ve built my financial modeling around the Durbin cap applying to Reg II. I’m a merchant, and am I, do I need to account for a significant volume of my debit cards now not being subject to the Reg II interchange fee cap because I’m hearing in the news these three-party system issues, and perhaps I’m gonna see a lot of debit cards that aren’t subject to the cap anymore.”

So sort of helping people understand what the regulatory framework looks like there and how that may affect their business. And so we, it’s regulatory advice, it’s product structuring, it’s contract negotiation. It’s kind of all the streets in this very specific industry. And I love that it’s both very, very focused on a particular target market and industry, but then has that regulatory transactional. I don’t do litigation. I have colleagues that handle the litigation. If things go really south, they don’t want me in court. But other than that-

Chris Uriarte: Hand that off to the litigators, you’ll stay in the back office. That’s fine, I understand.

Duncan Douglass: Yeah.

Chris Uriarte: Great. So let’s set the table for our discussion today around regulations specific to this regulatory climate here in the US. And again, I’ll start with a fairly basic question on the topic altogether which is who’s actually regulating payments in the US? I think we get this question a lot about, clients ask us who’s setting the rules here? Who’s actually setting the strategy from a regulatory perspective? And I think just to give a larger context, I think it’s a basic question across the board with many of our clients.

But we very often get the question maybe in different context or from a different direction depending on whether the client is US-based or maybe European or UK-based, because our friends in the UK and Europe are very, very used to having a very well-defined regulatory framework and a regulator associated with that such as the Payment Systems Regulator, the PSR, in the UK who’s now been recently absorbed by the FCA, the Financial Conduct Authority. The European Central Bank and its subsidiaries that are doing all this very, very formal payments regulation. And when you think about the UK and the EU, there are offices of people that are sitting in the room every single day writing and maintaining payments regulations and very often enacted as part of a larger payment strategy. How does that differ here in the US and who’s really running the show here?

Duncan Douglass: Yeah, so I guess first and foremost, for better or worse, people could, it’s subject to debate, I guess. have a much more reactive rather than proactive regulatory approach to payments. It’s very much a, until there’s a visible need for intervention and then intervene as opposed to of anticipating what we think might be necessary or appropriate from a regulatory perspective and getting out ahead of it. That’s not always the case, but I think that that’s a fair, sort of very broad-brush painting.

And in part because of that, and in part just because of the way our system of government evolved, we don’t have a single payments regulator. We don’t have two, we don’t have five, right? We have, if you’re a bank, you can have one of three primary federal regulators, the OCC for national banks, the Federal Reserve Board or the FDIC.

And then when it comes to consumer payments, then you have the CFPB. Which thanks to Dodd-Frank in 2010, the sort of consumer regulations at the federal level were taken out of the Federal Reserve and given to the CFPB to be a sort of across the board consumer protection regulator at the federal level. Then we have state laws. The, not the least, we have the Uniform Commercial Code that we mentioned, and we have state financial institution regulators, we have state consumer protection regulators. And that depends, if you’re a non-bank, if you’re a state-chartered bank, you can have a state regulator in addition to a federal regulator.

If you’re a non-bank, like a money transmitter or a fintech, if you’re in the flow of funds, you’ll have those state regulators who are licensing you as a money transmitter, or then you have the Bank Secrecy Act and FinCEN at the federal level and OFAC who are regulating for any money laundering and terrorist financing.

So it really is a hodgepodge that depends on your identity, right? Sort of a functional regulator, who you are and what you’re doing. It depends on the area. Is it consumer? Is it non-consumer? Is it a Bank Secrecy Act money laundering or terrorist financing issue? Is it privacy? Because then we have some separate, particularly at the state level, privacy regulators, and you can’t really separate payments from privacy these days, and security.

So it is incredibly, incredibly sort of complex and sometimes confusing sort of patchwork. And there are battles, right? We’ve seen this a whole lot recently, and I’m sure we’ll talk some today about some of these battles about, the state wants to regulate, and the OCC and the federal government says, “No,” right?

“You’re stepping on my toes. That’s my purview to regulate in that area. You need to back away.” So, it does, it creates complexity, in our system that folks can legitimately complain about, but it’s just part of the fabric of our federalist system with a federal government and state governments, and sometimes sort of territorial disputes and overlap that occur.

Chris Uriarte: It is a super complex patchwork and we know that our clients have a very difficult time trying to navigate it which is why they use good advisors like y’all and us as well to help at least call out some of the key areas. It’s really a major challenge here in the US to keep up with things. One of the areas that we know there’s been a lot of energy spent from a regulatory, rules, regulations, laws perspective over the course of the last few years, one of our merchants’ very favorite topics, which is, of course, interchange, right?

And for our folks listening, you hear that term a lot. Some of you probably know exactly what interchange is. But sometimes there’s a little bit of confusion about interchange. Sometimes people think that interchange is everything that a merchant pays to process a credit card, right, but it’s not everything, it’s just a portion of that. And specifically interchange really at the end of the day is the revenue that gets paid back to the issuer on every transaction, particularly in the Visa and Mastercard network.

So usually, we’ve talked about this before on this podcast and we talk about this in our boot camps, we usually see that that flow, the merchant paying that, it goes to the acquirer and the acquirer quote unquote reimburses the issuer for the interchange fee and those interchange fees are either set by the card networks or in a lot of cases in some countries or in some subsets like here in the US with debit, which we’ll talk about, a regulator will actually set the interchange and it’ll be set by law.

So I wanna start with some of the actions related to regulated debit interchange and, as you have mentioned, that was implemented under the Durbin Amendment, now going back, is this a decade now, are we a decade into this?

Duncan Douglass: It was 2010. We’re 16 years out, Chris.

Chris Uriarte: 16 years, oh my God.

Duncan Douglass: Dodd-Frank, yeah.

Chris Uriarte: It flies, it’s crazy. I just was reading all this stuff a couple weeks ago that we’re a decade into, it was the 10th anniversary of Brexit and how that changed everything and that just flew by like that. It’s really incredible how time flies. So we’re 16 years into Dodd-Frank. We had this thing called the Durbin Amendment. It did, had a lot of different new regulations and rules associated with multinetwork routing. And most importantly, which we’re gonna talk about here today is the interchange regulation on debit cards. And, you know, Duncan I’m not sure if you’ve ever been to the famous Corner Post Truck Stop in North Dakota. I certainly have not.

Duncan Douglass: I have not.

Chris Uriarte: But it has made a lot of headlines over the course of the last couple years, because we had this challenge that was brought to the courts a few years ago which was Corner Post Truck Stop versus the governors of the Federal Reserve System in the US. And this is a scenario where Corner Post, I think, was the merchant, right, who challenged the Reg II provision of the Durbin Amendment which resulted in the courts essentially ruling, I think, that the Federal Reserve Board had exceeded its authority in considering some of the costs that were incurred by issuers when it ultimately calculated the Durbin-regulated debit interchange rate. And if I remember some of the initial headlines on the next morning, was sort of like “Durbin is struck down. Regulated interchange struck down.” but it’s a lot more nuanced than that, I think, right, which we’ll get into.

And then we had another similar case I think in another circuit where the merchant was Linny’s Pizza who had filed a similar challenge And I know these two cases are fairly similar but they’ve also taken some different directions so maybe you could just refresh us a little bit on the history of these cases and kind of where we stand because I know they’re fairly significant.

Duncan Douglass: Yeah, I mean, so since 2011, it was 2010, the Durbin Amendment, Dodd-Frank, in 2011, the Federal Reserve, which interestingly, I can’t remember how long Dodd-Frank is, like 1,500 pages, and the Durbin amendment is only something like 10 to 12 pages of the law. And this is when you were in school, and you had to write a five-page paper. It’s double-spaced, it’s wide margins, right? So it’s, there’s not a lot of text there, and it left a lot of room for the Federal Reserve Board to write rules to implement the Durbin amendment. And they did so through Regulation II.

And since they issued that in its final form in 2011, there have been challenges, and it’s one of those situations where neither side is happy, right? The issuers think the Federal Reserve Board got it wrong because they didn’t include enough costs when they were determining what the interchange fee cap would be for regulated debit. And merchants said, “No, you included a bunch of costs that Congress didn’t intend you to include. Look at the statute. You over-included to get to the interchange fee cap where it stands today.” The issuers generally have not filed litigation challenging the board.

But you’ll remember the National Association of Convenience Stores, NACs, back in, I think it was 2014, filed litigation, pretty similar, making a lot of similar arguments to what Corner Post made. Basically said, “Look, you over-included costs, Federal Reserve Board, when you wrote this rule. You weren’t faithful to what Congress told you to do in the 10 pages of text. They gave you enough guidance to know that what you did wasn’t right. You need to, the rule needs to be thrown away, and you need to go back to the drawing board.”

Well, ultimately, the Federal Reserve Board won that case. It didn’t go to the Supreme Court in 2017, I think, by the time it got through appeals. But then Corner Post came along, and on very similar grounds challenged the regulation again. Some procedural nuances that we won’t get into there, but ultimately, to your point, Chris, the federal district court in North Dakota said, “Agree with you merchants. The Federal Reserve Board included costs they shouldn’t have included in setting that interchange fee cap way back in 2011. I’m gonna vacate the rule,” a judge said, “and make the board go rewrite the rule.” He then immediately suspended that vacatur because he knew the Federal Reserve Board was going to appeal the rule.

And you can imagine, which they did, you can imagine what happens if you have this rule that’s been in place for 14 years at this time, wiped off the books, so now we have no rule, right? If it’s immediately vacated, then you have no rule, and the Federal Reserve Board is frantically trying to write a new rule. Meanwhile, they’re appealing it, and they could win on appeal to the court of appeals.

And so it’s common in those cases for a judge to, if they know the case is going to be appealed, to say, “This is my ruling. If I win, you know, if my ruling is upheld, the case is gonna be, the rule is gonna be wiped off the books, and the board is going to have to go back and write a new rule.” But that they stayed the vacate, or stayed the result of the decision to wait to see how the appeal goes.

So that is currently still in appeal to the Eighth Circuit Court of Appeals, who, remember at the federal level, we have the Supreme Court is the highest court, then we have courts of appeals is the intermediate level, and then we have the district courts, which are the trial courts at the federal level.

So we’ve had the trial court level. It’s being appealed to the next court up. At same time, to your point, I mean, kind of ongoing, almost the exact same case, same law firm, everything, in Kentucky, district judge there says, “No, actually opposite decision. The Federal Reserve Board got it right, or at least they acted within the scope of what was a reasonable interpretation of what Congress, or the best interpretation of what Congress, included in the Durbin amendment.” So the Federal Reserve Board wins. Reg II is upheld. So, and of course, that is being appealed to the Sixth Circuit Court of Appeals, which is the court of appeals that has jurisdiction over Kentucky district court.

So we have these two competing decisions, no way to reconcile them, that are now on appeal with two different circuit courts of appeals, and we’re waiting to see what comes out of those decisions. Ultimately, if they stand, if they were, let’s say they were both upheld on appeal, we would then have a direct circuit split, which is really encourages the Supreme Court to take a case.

The Supreme Court doesn’t have to take these cases. When you have a right of appeal from the district court to the circuit, to the court of appeals, the Supreme Court doesn’t have to take the case, but they frequently want to when there’s a direct conflict between two courts of appeals because you really don’t want to have the law be different in states where the Eighth Circuit has jurisdiction than where the Sixth Circuit has jurisdiction. That would be really weird, particularly when you have a federal regulation like this. It’s not really possible.

So that’s currently where we stand. So the Reg II is still in effect as it existed in 2011. But we have one district court holding that the rule should be kind of vacated, should be wiped out, and the board should have to go back to the drawing board. We have another court that has said, “No, that’s not the right answer,” and we’re waiting to see how those appeals get resolved.

Chris Uriarte: Yeah super interesting and complex and I’m sure that’s gonna take some more time. But prior to this litigation or kind of independent and parallel to all this happening, we did hear from the Fed back in 2023 that it had performed its assessment of issuer costs that go into this calculation of what the regulated debit rate should be. And it actually came back and it proposed a reduction in the regulated rate.

So today we’re at about, without getting into all the details, we’re at about 22 cents plus 5 basis points is what winds up getting charged for the regulated debit rate here in the US. And the Fed has said that that is gonna come down to 14.4 cents plus 4 basis points plus a 1.3 cent fraud allowance as well. So about, you know, do the math on that, 15.7 cents plus 4 basis points. Though they haven’t implemented this yet, am I right? So this is just on hold?

Duncan Douglass: Yeah. Yeah. So they issued that rule proposal in 2023, right? And the way they have to go through the rule making is they issue a proposal, they have to take comments and feedback on the proposal, they’re supposed to consider those comments and feedback, and then they issue a final rule.

So they issued that proposal. They received a whole bunch of comments and feedback, as you might imagine, then nothing has happened since. And that’s not surprising because, number one, there’s this ongoing litigation. And what the board did with their rule proposal was there was no structural change, right? They said, “We are still including all of the same costs that we included in 2011. We just think some of these costs have changed over time, and that when we look at…” because the cap that was set by the Durbin Amendment and Reg II is based on issuer’s costs, they said, “We think some of these costs have come down over time that merit a reduction in the interchange fee cap,” down to your point, by about a third, of what it was before, but no structural change.

These cases are about structural change, right? Saying, “Look, you need to exclude some of the categories of costs, Federal Reserve Board, that you’ve been including in setting the cap.” So we have the Fed issuing a proposed rule that says, “We think, even keeping all of the inputs the same, we think the cost numbers have come down.” And we have this litigation that says, “You should be taking some of those numbers out. They shouldn’t even be in there.”

And so the board pretty much has said, “We’re gonna hit pause on the rule making because we wanna see, do we have to rewrite an entire rule? We don’t wanna finish making adjustments based on cost changes when we’re gonna have to go in and completely start over and rewrite the rule.” So they’re not, they’re almost surely not going to try to finalize a rule that is basically the current subject of ongoing litigation and conflicting outcomes that are being appealed, and they’re defending those cases, right? So they don’t wanna do anything that prejudices their case with what they’re doing in rule making.

So that’s almost surely going to stay on hold until we get some resolution of this litigation.

Chris Uriarte: Yeah that completely makes sense. Yep.

Samantha Gordon: So Duncan, I’m gonna continue on the interchange, but shift to another case that’s been working its way through appeals court. We’ve seen a lot of movement recently actually on the ongoing Visa, Mastercard merchant settlement, which for our listeners, we’ve talked about at length on this podcast before, so I encourage everyone to check out some of our earlier episodes on this topic. But the gist of the settlement is that it creates a small interchange reduction and a cap for merchants. It caps interchange rates on standard consumer cards to 1.25%, and it’s supposed to give merchants more power around which card products they could accept or reject or surcharge, and gives them more power to negotiate as buying groups. But of course, views are mixed from everyone. So Duncan, we had a ruling come down a couple weeks ago, but what’s the latest on this case, and what are the practical implications here right now?

Duncan Douglass: Yeah, I think one of the things that I think is very interesting about this is, right, so this, I mean, obviously this litigation has been going on for decades, and sounds like you guys have talked about it a lot on the podcast. I’m gonna go back and listen to those. But the short of it is, right, last month, the judge presiding over the case issued preliminary approval of the settlement.

So Visa and Mastercard and the merchants who are leading the litigation in this class action reached a settlement agreement. And in cases like this, when there’s a settlement agreement in class actions, the court has to approve the settlement agreement and say, yes, it’s sort of fair to everybody, or it’s a reasonable outcome. And not necessarily the best outcome, not necessarily, right?

And this judge made it clear that he was not weighing in on whether or not this was the best outcome or the like. But just that, taking into consideration the costs and time of litigation that would take and the risks that maybe the merchants would lose the litigation if that happened or wouldn’t get as much, this was an acceptable agreement to reach.

And so he granted preliminary approval. What still has to happen is now that gives members of the class and other merchants the ability to object. So parties can come in and say, “Yes, Judge, we think you got it right. This is why you should issue final approval of the settlement.” And folks have the opportunity to object and say, “This is crazy. Here are all the reasons you’re not thinking of, that this settlement agreement is ludicrous. You shouldn’t approve it.” And there’s been pretty strong opposition from the merchant community against the settlement.

And I think one thing that’s particularly interesting is in 2024, a version of this settlement agreement, merchants and Visa and Mastercard reached a settlement agreement. At the time, Judge Margo Brody was the judge presiding over the case. She’s since been elevated to be chief judge of her court in New York, Federal District Court. And so when you’re chief judge, you have a lot of administrative responsibility. She moved this litigation in January of this year to a different judge. But in 2024, she rejected preliminary approval of a settlement agreement that was not quite as rich as this one. I think that was, folks are pegging that at about a $30 billion worth of settlement value. This is about $38 billion of settlement value. But she was uncomplimentary, I would say, of that settlement agreement, saying it was pretty unfair to merchants and thought they would do a lot better in proceeding with the litigation.

This time, Judge Coggan, who took over the case in January, sort of said, eh, implied, I guess, that maybe, he understood that this was not leaps and bounds different than the settlement agreement that Judge Brody was rejected. But that there are all these risks of proceeding with litigation and granted preliminary approval. I think some people have questioned whether Judge Brody would have granted preliminary approval if it was still her case, but that’s sort of water under the bridge.

So, it is not finalized, right? None of the contents of the settlement agreement are sort of, you know, take to the bank or rely on. This is a necessary step to getting to final settlement. It’s important because, I don’t have any statistics, but once judge grants preliminary approval, there’s a much higher likelihood of granting final approval. Obviously, if he didn’t grant preliminary approval, he’s not gonna grant final approval, but those tend to go together.

But there is a pretty significant, at least by all press reports, amount of opposition from merchants to the settlement, including that it’s insufficiently adequate in light of the damages that the breadth of release, because in exchange for the settlement, merchants give a release, releasing claims that they could have brought against Visa and Mastercard, and they say the breadth of the release is, in terms of scope and duration is too great. And so, we’ll see how much impact that has on whether final approval gets granted.

Chris Uriarte: I was just gonna add, Sam, that I think from our perspective, while we have talked about it several times on this, I don’t think we’ve commented recently. Wouldn’t you say that most of our merchant clients are basically saying meh to this, is they don’t see this as really moving the needle on anything at the end of the day?

Samantha Gordon: They don’t because it’s limited to interchange on consumer cards, which our merchants would say is one line item in a very long list of line items. So, we hear feedback from stakeholders all the time, but sounds like, we know it’s in the press. We know there’s a lot still in motion, too. I mean, Duncan, when does it, when would this need to be implemented, or when should we keep watching for what’s next?

Duncan Douglass: Yes. So there are timelines in the settlement agreement, but they all kind of trigger off of when final approval would be granted. And there’s not a sort of mandatory timeframe for the court to make a decision on final approval, right? So you sort of end up with this wanting folks to have a reasonable opportunity to be heard, and things can be appealed, right? And no judge wants to be overturned on appeal, so he’s gonna wanna, this has been going on a long time, right?

And so I wouldn’t sort of count on, there’s no specific timeline. I wouldn’t count on a rapid proceeding to a determination on final approval, either thumbs up or thumbs down, particularly given the amount of opposition and then therefore defense of the settlement that’s, it’s gonna be a contested set of settlement hearings, right?

So this is not everybody holding hands, singing Kumbaya, “Great, I’m glad we reached a settlement. We just gotta get the final approval.” This is hotly contested, so there’s gonna be a lot of legal sparring yet to happen in connection with whether or not the settlement should be finally approved.

Chris Uriarte: Yep.

Samantha Gordon: Can I bring up another oldie but goodie piece of regulation we’ve been talking about for a while? We’ve also been talking for a number of years about the CCCA, which, you know, it gets called the Durbin Amendment for credit cards, although I want to note that there’s no proposals for pricing regulation within the CCCA. But can you give us a brief recap of the elements of this?

Duncan Douglass: Yeah. Yeah. So I mean, I think the Durbin analogy holds some merit because Senator Durbin was also the sponsor of this Credit Card Competition Act. And it does have the element of, that is also present in Durbin amendment from 2010 and Reg II, which is that it would require that every credit card carry two unaffiliated networks on it, right?

Right now, at least in the US, pretty much have only one network on every debit card, I mean, every credit card, right? So if it’s a Visa credit card, it’s a Visa credit card. If it’s a Mastercard credit card, it’s a Mastercard credit card. So the CCCA would say every credit card has to carry two networks that are unaffiliated with each other. They can’t be the two largest networks by volume in the US, so you couldn’t have currently Visa and Mastercard on the same card.

The idea is that even though there’s not a fee cap like there is for regulated debit, that there would be routing competition, and the networks would compete on price to try to get merchants to route to their network. So if network A lowers their price a little bit below network B, merchants will rush to route those transactions to network A, and then B would lower, and there’d be this competition that would naturally drive down, would naturally drive down price. That’s sort of the core element. It would be sort of mandated competition to try to create a price adjustment through mandated competition.

Samantha Gordon: So where does that stand today?

Duncan Douglass: So, we’re on, I don’t know, the third or fourth Congress. We’re second or third Congress, four or five years, six years, where this has been introduced and reintroduced. Trump has expressed some support for it. It doesn’t fall, it’s not an issue that falls clearly along party lines, right? And so we are very much in a world of party politics.

And so it has a hard time gaining traction as an independent piece of legislation to really get floor time, get a vote, right? We’ve got wars going on, and we’ve got the economic situation, and nobody thinks this is, even though there’s an argument that, well, consumer prices are inflated because of credit card interchange, nobody thinks that if you pass this law, that there’s gonna be an immediate reduction in consumer prices. Everybody’s focused on a November election, trying to get prices down between now and then. This ain’t gonna do it.

So it’s hard to get this passed on a standalone basis. And so the strategy remains, because it has been for a while, trying to attach this to some other piece of legislation that has to pass. There’s probably not enough opposition in Congress to CCCA. If you had a piece of legislation that’s bipartisan that everybody wants to pass and this gets attached to it, and makes it through the amendment process, so it is actually part of the piece of legislation, there’s a decent chance it could get passed.

But they’ve gotta find a vehicle that they can attach it to. You can’t really attach an amendment to something that is completely unrelated, right? It’s hard to be like, “Oh, well, this relates to education because people sometimes use credit cards to pay for education,” right? It becomes hard to attach an amendment to completely unrelated legislation. They’re trying to basically find a vehicle to attach it to that is going to pass and it’s one of the cars on the train, and they want it to just push through with the train. But so far, that hasn’t sort of popped up.

And there is opposition in some quarters in that they, sort of those folks have sort of kept it from being attached to some other parts of legislation like they try to, the Defense Authorization Act and things like that earlier, trying to attach it through.

So, it’s in limbo. I mean, it’s still active, but whether or not it goes through this year I think is particularly dubious because we’re in an election year. We’ve got other things going on internationally that are people’s focus and this is a longer burn rather than a short-term fix of the type that folks are really trying to get passed between now and November.

Chris Uriarte: Yeah. I won’t hold my breath on this one for sure. But I think there’s still a lot of discussion about interchange-related things, and one of the things that I wanted to bring up is a lot of the noise been focused around this Illinois IFPA which was a state law that was recently passed and enacted which restricted interchange from being applied to taxes and gratuities. There’s been a lot of major objections from the banking industry, from acquirers, and even from the bank regulators themselves. And I don’t want to get into the guts of this law today That’s a whole episode in and of itself.

But I think it has been implemented right, it is live. But my understanding is that there’s been a lot of objections that are out there. There’s been several other states that have proposed similar laws and regulations. So maybe just update us very quickly on the status of what the regulators at the federal level are saying about this and kind of where that stands and then maybe we could jump into some broader implications.

Duncan Douglass: Yeah. So it’s been, it actually got delayed at the 11th hour by the Illinois legislature. Yeah, so now the effective date, it’s still out there. The effective date is July 1st of 2027.

Chris Uriarte: Okay okay. Got it.

Duncan Douglass: So yeah, so it did get delayed, but it also largely, at least as it stands now, got kind of gutted by court decisions because the OCC issued a rule that said, “Hey, this law, this state law that regulates interchange, or limits interchange for certain types of tax and gratuity amounts, that doesn’t apply to national banks,” right?

So if it’s a national bank, which is most of your big banks, the law, State, you can’t apply the law to them because I, the OCC, get to regulate them, and you’re interfering with their rights as a national bank. And a court ultimately agreed that if that’s what the OCC says, then that’s the law.

And they said, okay, because of that and then some non-discrimination laws that exist, they said the law doesn’t apply to national banks or federal savings associations. And there’s a non-discrimination law that says any, basically, if the law doesn’t apply to a national bank, then it doesn’t apply to a state-chartered bank because we try not to discriminate against banks that are state-chartered versus national banks.

So then you say, okay, now the law doesn’t apply to national banks or state-chartered banks. You’re kind of at state credit unions, a couple of odd sort of state-chartered bank entities, and then maybe federal credit unions. Actually, the litigation is ongoing because there’s federal credit unions are arguing that the law shouldn’t apply to them either. But we’re now down to this, like, small subset of banks that the law could actually apply to.

Chris Uriarte: Right.

Samantha Gordon: Yes.

Duncan Douglass: And so it’ll be curious to see whether or not from a legislative perspective, they say, “Okay, we’re gonna continue to go through this hassle, and merchants are gonna try to implement technology to identify tax and gratuity amount of transactions for a very small subset of transactions that would actually be subject to the law.”

Samantha Gordon: Yeah. So Duncan, what are the broader industry implications here? Because you brought this up earlier, how merchants, banks, service providers already deal with this patchwork of regulations across 50 states and the federal level. Sometimes it’s not clear which applies when. I mean, is it realistic for stakeholders to comply with interchange rules that might change on a state by state basis?

Duncan Douglass: I think that is a, that’s the real interesting question, right? So Colorado passed a law, the legislature did. The governor vetoed it because he said there’s too much, there’s too much complexity going on right now with everything that’s going on in Illinois, and so he vetoed it. About, I don’t know, 20-plus other states have had similar laws introduced. None of them have passed them.

But it raises that really operational question. I mean, there’s interesting legal nuance about the wrangling between the federal government’s authority and state governments. But I think from a industry perspective, it’s really interesting to say, “Okay, let’s boil this. Is it practical? Is it a practical sort of state-by-state solution”, right? And you say, okay, for an e-commerce merchant that does business in all 50 states, right? You remember when we had e-commerce merchants weren’t charging sales tax anywhere, and everybody said, “It’s not fair. The big e-commerce merchants have a leg up ’cause they’re not charging sales tax.” And then we came up with sort of this complex scheme of how you decide which, where to collect sales tax and who to pay it to.

Well, it’s the same thing here because you say it’s gonna be different, right? If an e-commerce merchant is shipping to somebody in Illinois, then the Illinois law applies. But if they’re shipping to somebody in Georgia, then Georgia’s law applies. And what if the person buying it is in Georgia, but it’s a gift and they’re shipping it to another state? And merchants would have to accurately collect all of, and collect all that information and report it, and so their processors, ISVs, payfacs, whomever, would have to be able to create systems to collect that information and accurately, and report it. And then networks and issuers would have to be able, have these tables that adjust the amount of the transaction interchange based on what the tax and gratuity amount was. And gratuity’s obviously added sort of after the fact, after the authorization.

And so it really is, I think, a technological complexity that would be really challenging to implement, particularly if you said now you’re gonna do it across 50 states, and so it’s gonna be a little bit different, and each state’s law would be a little different. Some states would say it’s no interchange on tax and gratuity. Some would say no interchange on tax, but gratuity is okay. Some would say a certain amount of tax is excluded. And so it would be really hairy, to say the least.

Chris Uriarte: What a nightmare. For sure.

Duncan Douglass: For everybody involved, right? I mean, there might be some savings at play, but it would be really, really complex to implement when you’re talking about a state level approach.

And that’s true across payments. I mean, Sam, you made that point, right? I mean, anytime you have these sort of state specific laws, and they vary from one state to the next, it gets pretty complex in a hurry. We’re in a national and global economy. It’s hard to have divergent requirements across states.

I was about to say this immediately makes me think of merchant surcharging, which is a great example of an area that has a ton of different state regulations.

Super complex.

Samantha Gordon: Yeah, there’s states where it’s prohibited, some where surcharge is capped, and then there’s, you’re navigating that as well as the overarching network rules that govern surcharging applications and limits, and federal rules that govern, that prohibit surcharging debit card payments.

So just as a working example, what’s currently happening in this space?

Duncan Douglass: You’ve hit the nail on the head. It’s an incredibly complex fabric of state requirements, network rules. The states are different. Or if you’re e-commerce versus brick and mortar, you know, e-commerce, you say is it what matters where I’m located or does it matter where the consumer’s coming from through their computer? Is it their state law or my state law that applies? So it is just incredibly complex.

Now, folks are doing it, and we’re seeing more and more, all of us are experiencing in our personal lives, right? More and more surcharging in specific segments, right? When you’re a captive audience, it’s a lot easier for them to surcharge. But it’s just incredibly complex. I mean, it’s one of the more, when folks come to us and say, “Hey, we, heard our competitors or somebody said we ought to be surcharging to offset the cost of acceptance. We want to do it. We’re just gonna add, you know, 5% to every transaction.” We’re like, “Okay. Let’s slow down. It’s, yeah, let’s slow down. There’s a whole host of requirements. Want to make sure you’re on board and understand what you’re getting into. It’s not impossible, but it is complex.”

Samantha Gordon: Yeah. So what advice do you have for merchants that are thinking about a surcharging strategy?

Duncan Douglass: So we always say, look, there’s a lot of terminology, and the terminology both matters, it is important, but it is not determinative. Many folks say, “Hey, my fill in your blank, my ISP, my processor, my payfac said I can surcharge. I’m gonna add a convenience fee. It’s gonna be a percentage of the transaction amount.” You say, Okay, well, let’s get our terminology down. Convenience fees are not percentage of the transaction amount, right? That’s a fixed amount, and there are all these requirements that apply.

So we say, Okay, let’s triangulate on, let’s start from a framework of the card network rules because that is a foundational. You’re gonna have to comply with the card network rules because they monitor for this, and you’re gonna find yourself in harm’s way in a hurry if you’re violating the card network rules. But that’s not sufficient, right? You need to comply with the network rules.

But Sam, you made the point of, you got Colorado that says you can’t surcharge more than 2%. Well, that’s lower than what the card networks will allow. Well, you don’t want to be violating state law, so we need to look at card network rules, then we need to say, what state laws are gonna restrict you. Sometimes there are caps, sometimes there are disclosure requirements, sometimes there are absolute prohibitions or at least risk of prohibitions. So we look at, what’s the state law overlay? Are you operating in all 50 states? Is it e-commerce? Is it brick-and-mortar? Is it both? Let’s go through the card network rules, the state law requirements. Let’s talk about where there’s going to be some overhanging risk because there are some areas that aren’t 100% clear.

We try to make sure clients understand what the risk exposure looks like in those areas where it’s not entirely clear and sort of winnow it down to a strategy of, all the way down to, okay, what are your disclosures gonna look like at the point of sale? How much are you gonna surcharge? You want to avoid any sort of state unfair, deceptive practices, situations because you’re not refunding surcharges or what have you. So it’s, a lot of times people abandon it somewhere along that process. Not everybody does, and it’s not impossible, but it’s definitely complex.

Samantha Gordon: It’s a lot.

Chris Uriarte: I want to call out an important point that you made, Duncan, which is terminology is really important here because there are important legal regulatory and card network rule distinctions between a surcharge a convenience fee and another area which is called a service fee or service charge as well. That’s a whole separate Payments on Fire episode for another day. We can do that maybe in 2027. But they are different things and we just want to call that out. Sam, you and I have done whole consulting engagements just around this issue for clients.

Samantha Gordon: We have, and going line by line by line of 50 states, one federal government, except there’s a bunch of rules, however many card networks are accepting. It’s a lot.

Chris Uriarte: It’s a lot. It’s really crazy. I want to shift topics a little bit Duncan to one of the hotter areas of discussion this past year which is stablecoins and maybe just do a few quick hits on that. We did have the landmark GENIUS Act that was passed in July of last year which put an initial regulatory framework in place. And I know now we’re really in the thick of the rulemaking in this area so maybe we’ll just talk about a few different areas.

I know one of the hot areas that’s been looked at is the GENIUS Act’s prohibition on paying interest on stablecoins. But we know that there’s been all sorts of I guess what I’ll kind of call backdoor kind of yield arrangements in place today between these, Circle and Tether and others, these issuers, these stablecoins and some of the partners in their ecosystem. I know we’re focusing a lot on that.

So what’s kind of happening in that area? And I bring this up for our fintech tech clients who are I know are in the midst of doing a lot of different things with stablecoins or looking at new programs. So I think this is one interesting area here to look at.

Duncan Douglass: Yeah. So on the interest or yield, right, the big concern from banks in particular was that, well, we don’t want the, to quote Ross Perot, “the giant sucking sound of deposits out of the banking system into stablecoin issuers and stablecoins.” And they said one thing that differentiates deposits is the ability for folks to earn yield or interest on just money that is sitting at rest. And so the GENIUS Act includes a prohibition on paying interest, but that’s for payment stablecoin issuers.

And the way the system’s gonna work, right, is issuers are going to issue stablecoins, but then transactions in stablecoins are gonna take place through wallets and on platforms. And so even if an issuer can’t pay yield, the action now is on, well, yeah, but those wallet providers who are holding the stablecoins, right? The issuer issued it and is holding the reserve currency, dollars or other highly liquid backing assets, they can’t pay interest. But what about the wallet provider who, I’ve got stablecoin in my wallet, you’ve got stablecoin in your wallet, what if they’re paying interest or yield?

Well, the GENIUS Act doesn’t prevent them from doing that. It does say that the issuers themselves can’t be in cahoots and sort of use the wallet providers to pay yield that the issuer can’t pay themselves. But the wallet provider could do it, and that’s why you see, you didn’t ask about the Clarity Act, but that’s been held up because the banks have said, “Ooh, there’s a gap here. We need Congress to say also that the wallet providers can’t pay interest or yield,” because that might otherwise result in folks vacating the banking system.

So that’s where some action has been. I think the other interesting, one of the other very interesting from my perspective regulatory issue is, will folks who pay with stablecoin view it as basically cash-like, right? Is it gonna be digital cash? Where you’re not necessarily gonna get the same protections you get with a debit card. Maybe if it’s a debit card-backed, stablecoin backing a debit card transaction, you’ll get those protections, or a credit card, but really a debit card. But otherwise it’s gonna be like electronic cash, and it’s bearer, right? You transfer it, it’s gone. If you say, “Wait, it got stolen,” or you didn’t protect it, or you’re unhappy with the purchase, eh, that’s too bad. That was, that’s like paying cash.

Chris Uriarte: Really, really important important point here. I’m glad you raised that. The other area that keeps getting raised is around compliance, things like AML, et cetera because one of the key use cases that we keep talking to folks in the industry about is about cross-border payments and the usage of stablecoins. So AML and just general security is a huge concern here. Where do we stand here, I mean, do stablecoin transactions, are they subject to the same type of monitoring and controls that we have with all with what I’ll just call kind of regular bank transactions, wires and things along those lines?

Duncan Douglass: Yeah, not exactly the same, but similar. So the Bank Secrecy Act sort of requirements do apply to both issuers and wallets that custody and provide stablecoin transaction services. So there is similar sort of federal requirements in terms of know your customer, anti-money laundering, anti-terrorist financing requirements that apply.

I think one of the concerns in the banking industry is that if those are applied by a bank, banks tend, they would say tend to be more concerned about compliance than some non-banks. And so they might say even if the law is similar, it may not be similarly enforced or similarly followed. But, you know, that’s substantially similar requirement.

Chris Uriarte: Okay so we need to keep an eye on that. But generally we’ll see probably what or at least what I think what we’re seeing particularly with our fintech clients those who are regulator are just saying any of this stablecoin activity we’re just gonna fold into our existing compliance program and kind of do the same monitoring there which is a good thing. That’s what we tell them they should be doing.

And lastly I wanna wrap things up, Samantha, I think we always joke that we are probably legally required by some sort of podcast regulation that exists, I’m not sure if that’s podcast regulation is federal or state level, Duncan, that’s also for another day. But we have to talk about agentic commerce, right, Sam?

Samantha Gordon: One must if you have a podcast in 2026. we know there’s a lot of issues right now related to fraud and liability. And Duncan, are your clients concerned about this? Has there been any discussion at the card network or the federal or state levels about how rules and laws are gonna need to change to accommodate the agentic model?

Duncan Douglass: So yes, clients are definitely focused on this. Not a lot of activity. Remember what I said at the beginning about reacting rather than being proactive, right? So there’s not a lot of activity at the federal or state level in terms of affirmative developments of changing the existing sort of legal underpinnings of payments and commerce to account for agentic.

Where a lot of the action has been, is in looking at the existing legal frameworks and saying, “Okay, it does not account for agentic commerce,” but that’s the law that’s gonna be applied when something goes wrong. So how is that law likely to be applied, right? And where we do see the sort of forward-looking, more proactive approach is in the payment network rules, right?

So we’ve seen that in the card networks, for example, are way out in front in terms of developing. There are already published rules to deal with, for example, when a cardholder engages an agent to conduct a transaction, that is an action of the cardholder. Even if the agent, you know, the cardholder says, “The agent didn’t do what I wanted them to do,” you’re still responsible for it.

And in some sense, from a legal perspective, agent is not my favorite term because agents are software, right? Agents, legally speaking, is sort of a third party with legal existence, right, whether it’s a person or a corporation, a juridical entity, which is something that is subject to the laws, can be prosecuted and stuff, acts on your behalf, right? Agent is really just a piece of software. And so, me claiming that the software that I gave an instruction to and sent out to do something for me didn’t do it the way I wanted it to, you’d say, “Well, that was clearly your fault. You used that piece of software.”

And maybe you could go back to the person who provided the software. I guarantee you the terms and conditions are gonna say, “Hey, not my problem if something goes wrong.” Maybe you could. But you can’t say they’re your legal agent and somehow you aren’t responsible for what the software did, right?

So I think the way, you know, there’s going to be some developments in law. Not in the next year or two. It’s gonna be the network rules and the like, and then if something isn’t being handled properly or there’s a need to update the laws, we will get around to doing it at the federal or state level, and I’m sure there’ll be competition there. But that’s what folks are focused on.

Merchants say, “Well, you know, do I have exposure if somehow my advertisement of a product triggers mistakes by the AI agent so they purchase the, they think it’s a real Porsche instead of a, you know, Matchbox Porsche,” right? Or, “Do I have, what about the consumer? Am I gonna have lots of chargebacks because they’re just gonna be charging back every transaction they’re unhappy with?”

And, we get a lot of those questions about the existing state of the law, but also sort of how network rules are evolving because again, the network rules are way out in front. We’ll see some legal developments, but for right now, it’s a lot of trying to figure out, read the tea leaves of how laws that were written in many cases 30, 40, 50 years ago are likely to be applied to something that I would dare say 50 years ago, Congress and the regulators were not thinking of.

Samantha Gordon: Definitely not top of mind.

Chris Uriarte: I Yeah for sure. I think I agree with the fact that the card networks are way ahead of any of the regulators but at the same time, most of us in the industry also feel that the card networks still haven’t taken that the really strong step yet at embedding like very strong agentic rules into the network rules yet. I think initial statements, like you said, that, listen, the cardholder is making the purchase here at the end of the day so it’s the same sort of situation. But I think our merchants are looking for a little bit more clarity from Visa and Mastercard. But as you said that’ll come out much sooner before the regulators get to it.

Duncan Douglass: Yep. And we’re not quite at the point yet where agents are actually executing transactions, right?

Chris Uriarte: Exactly. Exactly.

Samantha Gordon: It’s still a little theoretical.

Chris Uriarte: Long way to go, for sure. But this has been a great discussion. I feel like we’ve cheated our listeners, Duncan, because we could probably talk about different topics for three to four hours, but we’ll have to put a pause on this, and maybe we’ll come back at the end of 2027 and revisit this.

But I want to thank you for joining us today. Duncan Douglass, who’s a Partner at the global law firm of Alston & Bird, talking about US payments regulation today. On behalf of my colleague Samantha Gordon and the rest of my colleagues here at Glenbrook Partners, thanks for listening. Do good work, and we’ll see you next time. Thanks.