Regulation

Senate Majority Whip Richard Durbin introduced companion legislation Thursday to a bill by House Judiciary Committee Chairman John Conyers that would regulate interchange fees.

The American Bankers Association said today it "strongly opposes" the bill Sen. Richard Durbin, D-Ill., introduced yesterday to regulate interchange rates. "Just like the bill introduced in the House in March, this legislation inappropriately inserts the government in the role of setting prices in the private marketplace, undercutting a pricing system that currently benefits consumers, businesses and the broader economy," Edward L. Yingling, association president and CEO, said in a statement. According to the association, interchange revenue helps to support the infrastructure costs required to support the card-payments system and the risk nonpayment issuers routinely assume. "The result will be more federal bureaucracy, less industry competition and fewer choices—and ultimately higher prices—for consumers, as is always the case when government tries to fix prices," the statement continued.

By Brandy Colbert

Last week, the Financial Crimes Enforcement Network released a ruling that says merchants and nonbank owners of ATMs that reload prepaid cards are not in a regulatory category called money services businesses. The ruling means a bank that sponsors ATM and point-of-sale locations must comply with the Bank Secrecy Act for the transactions conducted at locations it sponsors.

The People's Bank of China is expanding the country's credit database by adding details about consumers' utility-bill payments, the central bank has announced. The database already includes information about consumers' loans and credit cards, the bank says. "The credit-record system in China is still lacking in many aspects," Fei Cao, payment analyst with Beijing-based research company Analysys International, tells CardLine Global. "Setting up a more complete credit database is something [that could] provide better card and financial services."

Over the coming months, banking institutions will continue to face deteriorating loan quality, Federal Reserve Vice Chairman Donald L. Kohn warned the Senate Committee on Banking, Housing and Urban Affairs today during a talk on the condition of the U.S. banking system. "House prices are still declining sharply in many localities, and losses related to residential real estate, including loans to builders and developers, are bound to increase further," Kohn said. "In addition, weak economic conditions could well extend problems to other segments of lending portfolios, including consumer installment or credit card loans." Kohn emphasized that financial institutions must be prepared "for the possibility that liquidity conditions become tighter if uncertainties in the capital markets fail to subside or if credit conditions deteriorate significantly." Because of these circumstances, the Fed anticipates the number of banks with "less-than-satisfactory supervisory ratings will continue to increase from the relatively low levels that have existed in recent years."

The China Banking Regulatory Commission has asked the country's banks to increase monitoring that could prevent illegal cash advances made with credit cards, according to a notice from the commission. Regulators want banks to set limits on cash advances credit cardholders make and keep better watch against illegal cash advances, the notice says. Regulators hope to prevent consumers from swiping their cards at payment terminals without buying goods, receiving instead cash from merchants who take a small cut. "The notice aims to reduce the risk of illegal cash advances and ensuring normal credit card transactions in the market," Fei Cao, a payment analyst with Beijing-based research company Analysys International, tells CardLine Global. "This notice will, however, not affect normal purchase transactions."

President Bush yesterday signed into law a bill prohibiting class-action lawsuits against merchants that once put payment card expiration dates on customer receipts. The U.S. House and Senate approved the legislation last month (CardLine, 5/15 and 5/21). The Credit and Debit Card Receipt Clarification Act of 2007 does not exempt merchants that fail to truncate credit or debit card numbers on receipts. Moreover, merchants that print expiration dates on receipts after June 3 also are not exempt, according to Bart Murphy, a partner at Ice Miller LLP, an Indianapolis-based law firm that represents several merchants facing lawsuits for including expiration dates on receipts. Penalties in those cases range from $100 to $1,000 per violation. The Fair and Accurate Credit Transactions Act, itself an amendment to the Fair Credit Reporting Act, prohibits businesses from printing expiration dates and requires them to truncate credit and debit card numbers so electronic receipts show no more than five digits. The act represents a "get-out-of-jail-free card" for merchants facing lawsuits filed before June 3, Murphy says. Merchants still are prohibited from printing expiration dates on receipts following June 3. The act does not remove the threat of a lawsuit if they do, Murphy explains. The new law also does not remove the legal liability for merchants that failed to truncate card numbers on receipts. The act means pending lawsuits related only to printing expiration dates on receipts before June 3 likely will be dismissed, Murphy says. This law is a "fix" to prevent plaintiff class-action attorneys from cashing in on technical violations of the act, known as FACTA, Murphy previously told CardLine. About a year ago, some law firms filed a series of lawsuits in which they alleged violations of the act and sought class-action status in Illinois and Chicago.

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