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More time consideration needed on interchange CUNA
WASHINGTON (12/17/10)—Addressing reporters yesterday in a national press teleconference, Credit Union National Association (CUNA) President/CEO Bill Cheney expressed strong concern about the potential cost to credit unions and their members of the Federal Reserve Board’s just-issued proposal to set debit interchange fees under the recently enacted Dodd-Frank financial reform law. Cheney took part in yesterday’s press call along with Jeff Tassey, executive director of the Electronic Payments Coalition, whose members include CUNA. The CUNA leader told reporters from national news publications, including The Wall Street Journal, USA Today and The Washington Post, that CUNA is very concerned about how the Fed plan could drive up transaction costs to consumers, a concern he said is noted by the Fed’s own document. Cheney said that CUNA acknowledges that the Fed was in a “difficult if not impossible position,” being charged under the law with setting interchange fees that would reflect “reasonable cost,” without being allowed to consider all issuers’ costs. Key costs the Fed did not consider in setting its rate are the costs related to fraud prevention and the actual cost of fraud, Cheney explained. The Fed’s documentation indicates that it did look at fraud prevention costs, but did not include those costs in the rate that it set. Instead, the Fed only included costs related to switching and data processing, he noted. “However, fraud prevention costs are critical to financial institutions such as credit unions,” Cheney added. “As the former chief executive of a credit union that operated a debit card program, I can attest that fraud prevention – combined with the costs of fraud itself – is the primary cost of providing debit card programs for credit union members. Somebody is going to have to pay those costs: Merchants don’t, and the proposed Fed rate (of between 7 to 12 cents per transaction) won’t. If anybody is going to shield consumers from higher fees, it is credit unions – but, at some point, adjustments are going to have to be made by credit unions to account for these costs,” he said. Card issuers with under $10 billion in assets are exempt from the proposed debit fee restrictions of 7 to 12 cents per transaction. This exemption covers most, but not all, credit unions, but Cheney said CUNA is concerned that small issuers may be placed at a significant competitive disadvantage under a two-tier system. He noted the Fed has acknowledged the proposal’s routing provisions may well undermine the exemptions, and added that the Fed’s proposal does not provide any enforcement provisions that would effectively prevent merchants from turning away debit cards from credit unions or other smaller issuers at the point of sale. Cheney urged credit unions to weigh in with the Fed while the proposal is out for comment and said CUNA would be doing the same. CUNA has also urged the Fed to slow down the regulatory process and has noted that the law was passed without public hearings. Expressing similar reservations, 13 senators this week signed a letter to the Fed to express their serious concerns about the harmful impact of this rule on consumers and the American economy.
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