CUNA’s Summary of House Offer on Interchange Regulation
Today, CUNA received the House’s offer regarding changes to Senator Durbin’s interchange amendment that is part of the financial reform legislation, the Wall Street Reform and Consumer Protection Act, HR 4713 pending in the House/Senate Conference. We have worked around the clock to pursue a range of important changes to this measure.
However, we are very disappointed with the House’s offer, negotiated with Senator Durbin, because we are concerned it does not go far enough to protect credit unions. We will continue working for improvements in the interchange provisions, and we urge you to continue your efforts to oppose the inclusion of the interchange bill in the financial reform legislation. In the meantime, here is a brief summary of the key provisions of the new interchange amendment. We will provide a more detailed analysis of any final interchange bill.
· The Fed would write regulations on interchange fees and whether they are reasonable and proportional to the marginal costs incurred by issuers relating to a transaction. The Board would issue the rules within 9 months of enactment (probably around March/April 2011) and they would take effect within a year. The costs would be limited to incremental costs of authorization, clearance and settlement plus costs related to preventing fraud.
· Credit unions and banks with assets of less than $10 billion would be exempt from the rate setting rules directly. However, the extent to which this exemption would work in practice is unclear and subject to much debate.
· There is no enforcement mechanism to ensure merchants would accept lower interchange fees from bank debit cards and higher interchange fees from credit union debit cards.
· The amendment would prohibit issuers and networks from inhibiting the ability of merchants to direct the routing of transactions.
· Federal and state government benefits and reloadable prepaid cards would be exempt from the rate settings.
· The Board would be authorized to require any issuer (including credit unions of all sizes) to provide information to the Board regarding the regulation of interchange fees and must disclosure aggregate information on costs and fees by issuers or payment card nets worth in connection with debit transactions. (This is another new provision about which we are concerned. However, if the Fed has to set interchange fees based on costs, it will be useful for them to include credit union data.)
· In its rules, the Board would have to consider the similarity between debit transactions and checks that clear the Federal Reserve System at par and to distinguish between the incremental costs incurred by an issuer for its role in settlement, clearance or authorization for a particular transaction.
· In writing the rule, the Board would have to consult with NCUA and other federal regulations.
· The Fed would also be directed to write rules on network fees to ensure network fees are not used to compensate an issuer or to evade the Board’s rules.
· The amendment does provide that merchant discounts for the form of payment (cash versus debit card, for example) may not differentiate on the basis of the issuer or network. Incentives for the use of credit cards may not differentiate on the basis of issuer or payment network and such incentives must be offered to all buyers and disclosed.
· Payment networks may not limit the ability of merchants to set minimum dollar values up to $10 for the acceptance of credit cards.
· Merchants would not be able to discriminate between debit cards or credit cards within a payment network on the basis of the issuer.
We just received the amendment this afternoon and are still reviewing it. Rest assured we still are working for improvements, to the fullest extent possible.