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Interchange CUNA webinar addresses compliance concerns
WASHINGTON (8/4/11)--Credit unions that do not have agreements with two unaffiliated payment networks should begin shopping for a new network now instead of waiting for the April 1, 2012 compliance date to draw closer, PayFusion CEO TJ Riha said in a Wednesday Credit Union National Association (CUNA) webinar on pending interchange debit fee cap regulations. Riha noted that it can take between 90 and 120 days for a financial institution to come to an agreement, do the necessary testing, and begin working with a payment network. This "exclusivity" -- or better put, nonexclusivity -- provision of the Federal Reserve Board's new interchange debit fee cap regulation is a key compliance requirement that CUNA notes all credit unions issuing debit cards have to address. Any new branding requirements, and associated network and processor fees, should be evaluated before going forward, Riha said. PolicyWorks Vice President Andrea Stritzke added that credit unions should take other due diligence steps before selecting a new processor, including requirements that the network operates nationally and can support anticipated merchant demand. Riha also noted some of the key "unknowns" surrounding the interchange regulation. One key unknown, Rhia said, is that although the major networks have said that they will create two-tiered fee systems, credit unions don’t know what actual fees will be established for smaller issuers exempted from the Federal Reserve Board’s 21-cent debit interchange fee. Moreover, since merchants will have some choice on how a transaction is routed, credit unions need to evaluate potential fee income from different networks and can’t assume the debit income they currently receive will remain at the same level, he added. Stritzke noted that while many credit unions are marketing free checking accounts as big banks increase their fees, credit unions that advertise free checking must make sure that they are truly providing free checking to their members and not imposing any maintenance or activity fee on the account. She also reminded credit unions that seek additional revenue from deposit services to determine what their account agreements allow and to review the disclosure requirements of the Truth in Savings Act. Stritzke also cautioned about trying to change terms of open and closed-end loans when looking for ways to make up lost revenue, and said that debit card rewards program agreements have to be carefully reviewed before instituting changes in those programs. Kathy Thompson, CUNA’s senior vice president for compliance, addressed a recurring question of what the Fed is going to do to make sure that the two-tiered system works. She noted that the Fed has made clear that the law doesn’t require any private payment network to maintain a two-tiered system and that the Fed has no authority to oversee any two-tiered system. The Fed is, however, taking steps to gather information after the interchange regulation is implemented to compare the interchange fees provided to small and large debit card issuers and whether merchants are discriminating in the debit cards they will accept. Thompson emphasized that, regardless of what the Fed learns in the next two years about whether there is actually a two-tiered system that benefits smaller financial institutions as envisioned in the Dodd-Frank Wall Street Reform and Consumer Protection Act, no one in Washington expects Congress to be willing to reopen the contentious issue of restrictions on debit interchange income. The webinar, which also covered portions of the new regulation that are effective Oct. 1 on how the “reasonable and proportional” fee cap will be calculated for debit card issuers over $10 billion in assets, will soon be archived by CUNA’s Center for Professional Development and available online. For more on the webinar, use the resource link.


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