NCUA Urges Fed To Expand Exemptions From Debit Rule For CUs

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WASHINGTON – NCUA on Wednesday called on the Federal Reserve to extend the Dodd-Frank Act’s protections for smaller institutions to protect credit unions from the network exclusivity and routing restrictions included in the bill’s debit interchange provisions.

NCUA Chairman Debbie Matz told Fed Chairman Ben Bernanke she believes that the provisions’ exemption from price controls for credit unions and banks with less than $10 billion in assets should be extended to the network exclusivity and routing provisions, as well. “Such action would be consistent with the exemption from the interchange transaction fee rulemaking, which is intended to shield smaller institutions from the costs of the Act,” Matz told the Fed Chairman in a letter yesterday.

Under the Fed’s proposed rule no debit card issuers, including credit unions, are exempt for the parts of the proposal that prohibit exclusive networks and allow merchants to choose how a transaction is processed.

With respect to network exclusivity, the Fed proposes to adopt either: (A) “Alternative A,” which would require a credit union to issue debit cards that could be processed by two unaffiliated networks, such as one PIN network and one unaffiliated network using signature authorization (or two unaffiliated PIN networks, or two unaffiliated signature networks); or (B) “Alternative B,” which would require a credit union to issue debit cards that could be processed on at least two unaffiliated PIN networks and also on at least two unaffiliated signature networks.

“The current [proposed] rule’s prohibitions against network exclusivity and merchant routing restrictions,” wrote Matz, “could significantly increase both fixed and variable costs for these small institutions, resulting in an inability to remain competitive with larger card issuers.”

Matz asked that the Fed adopt its final rule, scheduled for July, with meaningful exemptions for credit unions and the other exempt institutions. Credit unions and community banks are worried that price controls aimed at the big banks will have adverse effects on them as well.

Matz’s letter came as Congress was poised to hold a hearing this morning on implementation of the debit interchange proposal and its impact on issuers.


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