WASHINGTON (6/30/11)--Credit Union National Association (CUNA) President/CEO Bill Cheney said that the Federal Reserve “listened to the real concerns of credit unions” as it developed its final debit interchange fee cap rule, which was approved by a 4 to 1 vote by the Fed on Wednesday. The final rule would cap large issuer debit interchange fees at 21 cents, to cover network connectivity, hardware, software, and labor costs, as well as costs related to network processing and transaction monitoring. An additional five basis points per transaction may be charged to cover fraud losses. Debit card issuers with less than $10 billion in assets are exempt from the direct impact of the cap provisions. Prepaid cards and government-issued cards are also exempted.
Fed Chairman Ben Bernanke (shown speaking on the left) opens the public meeting convened yesterday to vote on a rule to impose a debit card interchange fee cap. Bernanke noted that the Fed received more than 11,000 comments on its proposed rule, and called the interchange provisions one of the most challenging elements of the Dodd-Frank Wall Street Reform Act. (CUNA Photo)
A separate interim final rule proposed would allow an additional penny to be charged if financial institutions are in compliance with Fed established fraud prevention standards. Comments on this interim final rule, which is effective Oct. 1, 2011, will be accepted until Sept. 30. The Fed’s initial proposal would have set a cap of 12 cents per transaction. Cheney said that these changes are “certainly an improvement” from the initial proposal, and said that CUNA’s focus would turn to ensuring that the small issuer exemption provided in the final rule would work as planned. Cheney said that many credit unions may be forced to adopt new member fees or take other measures if the two-tiered system does not work as planned. Following a resolution offer by Governor Daniel Tarullo in the form of an instruction to staff, the agency’s staff will report by April 2012 on whether there is a two tiered system and the impact of the rule on small issuers’ interchange fee income. Staff will also bring a more comprehensive report to the Board by April 2013 including whether there is a change in income for smaller issuers, whether merchants are discriminating against small issuers and on the impact of the exclusivity provisions. The final rule requires issuers to provide a debit card that can be processed on at least two unaffiliated card networks, such as one signature network and one unaffiliated PIN network. Under a second alternative, issuers may also provide a debit card that can be processed on two or more unaffiliated signature networks, but not on any PIN networks, or that can be processed on two or more unaffiliated PIN networks, but not on any signature networks. The final rule also prohibits issuers and payment card networks from limiting merchants’ ability to choose the network on which a transaction is routed, limited to those networks on which the debit card is enabled to be used. “Credit unions spoke out loudly and forcefully about the law and their concerns about the Fed’s proposed rule,” and had an impact on the Fed’s rulemaking process, Cheney said, noting that 5,600 of the 11,000 interchange comments that the Fed received came from credit unions, and more than half a million contacts on the interchange proposal were made ahead of a recent Senate vote on delaying interchange implementation. Legislation that would have delayed interchange cap implementation to allow greater time to study the issue failed in the Senate earlier this month, falling on a 54 to 45 vote margin. The measure needed 60 votes to pass. However, CUNA said that the Senate vote may have impacted the Fed’s decision on where to set the final debit interchange fee cap. National Credit Union Administration (NCUA) Chairman Debbie Matz said that the NCUA would “carefully monitor” interchange implementation, with a particular emphasis on the rule's impact on smaller credit unions. “To the extent possible, we need to ensure that this final rule will, in practice, work for credit unions and their members,” Matz said. CUNA will continue to work with the Fed as it implements this rule and monitor its impact on credit union members. The network exclusivity restrictions would become effective on April 1, 2012. The fee limitations are set to take effect on Oct. 1. The final rule will not impact benefit-related cards or prepaid cards until April 1, 2013, or later in some cases. For the Fed rule, use the resource link.