Frank Shares Interchange Concerns

Tuesday, December 21, 2010 12:00:51 PM

WASHINGTON - The implementation of still-pending interchange regulations, if not properly crafted, "may have unintended consequences" for credit unions and consumers, outgoing Financial Services Committee Chairman Barney Frank (D-Mass.) recently said in a letter to the Fed.

Limitations on network restrictions, which the legislation has promoted for inclusion under the regulations, should not unduly increase costs for credit unions, community banks, or government card programs, Frank added.

He also urged the Fed to "ensure that any entity offering debit transaction routing services maintains strong consumer protections, including privacy, data security, and fraud protections."

CUNA also expressed its concerns to the Fed last week, with President/CEO Bill Cheney saying that 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.

The Fed proposal, which was released last Thursday, would 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. However, Cheney expressed skepticism at the effectiveness of the $10 billion exemption cap, noting that there is nothing in the Fed's proposal that creates an enforcement mechanism to protect small issuers.

The Fed has left its proposal open for public comment until February 22, and CUNA continues to develop a more comprehensive comment letter.

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