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CUNA to Fed Interchange rule confirms CU fears
WASHINGTON (12/20/10)—The Federal Reserve’s proposed rule on interchange fees, which was introduced late last week, confirms the Credit Union National Association’s (CUNA) “worst fears about the inadequacies of the purported protections” for credit unions and other smaller issuers of debit cards, CUNA President/CEO Bill Cheney has said. The Fed has left its proposal open for public comment until Feb. 22, and Cheney quickly responded to the interchange announcement via a Friday letter to Fed Chairman Ben Bernanke summarizing CUNA’s initial concerns. A more detailed comment letter is also under development. The Fed proposal could cap debit card interchange fees that are paid by merchants to card issuers at 12 cents per transaction. Issuers with under $10 billion in assets would be exempt from the interchange changes. (See related Dec. 17 story: Fed offers two plans for interchange fees) However, Cheney has cast doubt on the effectiveness of the proposed asset limit, noting the lack of any enforcement mechanism to protect small issuers, which are supposed to be exempted from the law’s provisions. The loss of interchange fee income for small issuers and the costs of having to belong to more payment networks will have a “horrendous impact” on credit unions that offer debit cards, as well as their ability to build net worth, Cheney added. Cheney also noted that the complex routing provisions contained in the proposal would burden smaller issuers with even greater costs. “Because of statutory requirements, credit unions can only build net worth (capital) from retained earnings,” he wrote. “Any significant reduction in interchange income will require higher fees paid by consumers. Thus, consumers will be left paying for the bonanza to merchants--which is not what Congress intended.”


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