House and Senate Conferees Agree to Fed Control of Interchange Fees

Credit Union Association of Rhode Island
June 29, 2010 | COMMENTS

Senate lawmakers voted to accept a House proposal that retained portions of the financial reform Bill that would modify current interchange practices. Those changes include instructing the Federal Reserve Bank to set interchange fees which reflect what the bill refers to as "reasonable and proportional to the marginal costs incurred by issuers relating to a transaction."

The agreed-to version of interchange legislation would allow the federal government to impose controls on the fees paid to use electronic payment networks. While the proposal does currently exempt financial institutions with under $10 billion in assets from the terms of the legislation, CUNA, the League and others have said that carve out is unlikely to matter, as smaller issuers will likely be pushed aside by favorable deals between merchants and big issuers.

CUNA President Dan Mica drove home the point saying, "Nothing in the House offer directs the payment card networks to operate the two-rate system that would be necessary for the carve-out to work; nothing in the House offer includes enforcement provisions to require merchants to accept credit union cards were a two-rate system to exist; further, the legislation provides significant disincentives for payment networks to honor the carve-out," Mica pointed out.

Following the late afternoon decision by the Senators, CUNA Senior Vice President of Legislative Affairs said that CUNA "opposes the big bill with interchange in it, not the concept of financial regulatory reform. CUNA has repeatedly stated that, among other things, altering the  interchange rules in this form would result in an artificially low debit interchange rate that would force small issuers to recoup losses through other means."

Legislators are aiming to wrap up the financial regulatory reform conference committee by the end of this week. House Financial Services Chairman Barney Frank (D-Mass.) and Senate Banking Committee Chairman Chris Dodd (D-Conn.) disclosed on Tuesday that the committee will discuss prudent regulation on Wednesday, with limited debate on derivatives set to take place on Thursday. Legislative offers, counter-offers, as well as votes will take place on those days as well.

The committee this week agreed to legislation addressing thrifts, deposit insurance reforms, hedge funds, credit rating agencies, executive compensation, and investor protections, among other items.

Reprinted with permission from the Credit Union Association of Rhode Island.