Fed Issues Interchange Proposal (Misc News: December 17, 2010)
The Federal Reserve Board’s interchange proposal, released Thursday, would cap interchange fees at a maximum of 12 cents per transaction, but may exempt financial institutions with less than $10 billion in assets.
The Fed is seeking public comments on its proposal, which is in response to the Durbin Amendment to the Dodd-Frank Act, through Feb. 22. The MCUL is working on a comment call for its members. The new rules are required to go into effect by April 21, but Fed staff told CUNA that it will have difficult finalizing the rule by that date.
According to CUNA’s initial analysis of the 177-page proposal, there is an exemption for small issuers with less than $10 billion in assets – which would include all credit unions in Michigan – but it doesn’t include provisions to enforce it. Without an enforcement provision, small issuers could be disadvantaged at the point of sale, CUNA warned.
“While this is not totally surprising, since the Durbin Amendment to Dodd-Frank Act did not include enforcement provisions for small issuers’ exemption, we believe the Fed has the authority to reinforce the exemption and help make it work,” CUNA President/CEO Bill Cheney in a letter to stakeholders.
There are indications that the interchange networks are working on a two-tiered system, but there is nothing in the proposal that directs that result, he said.
Cheney said that a discussion between Fed Governor Elizabeth Duke and the Fed staff illustrates the difficult position the Fed is in regarding the Durbin Amendment. Cheney said that the Fed is concerned about the impact of the proposal on small issuers.
“It also demonstrated that it will be very difficult to implement the Durbin Amendment in a manner that does not harm small issuers, and ultimately consumers, because of the restrictions in the statute,” Cheney said.
The Fed’s proposal does not include fraud prevention costs or the actual cost of fraud.
“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 card members,” Cheney said.
Click here to read CUNA’s story on the proposal. There is a link there to full Fed proposal.