August 01, 2013

Debit interchange ruling costs all CUs

A federal district court judge's decision to overturn the Federal Reserve's rule on debit interchange fees is "extraordinary" and "will have major repercussions for members of both small and large credit unions," NAFCU General Counsel and Vice President of Regulatory Affairs Carrie Hunt said Wednesday.

The Fed's debit interchange fee cap – 21 cents per transaction – applies to all debit-card issuers with more than $10 billion in assets, but NAFCU holds that market forces will, over time, force all issuers to adopt the cap. Hunt said the effects of the court's ruling vacating the Fed regulation – both with respect to the debit interchange fee cap and provisions on network exclusivity – will likely be felt by all issuers, including the smaller credit unions and banks the Durbin amendment purports to protect.

The lawsuit was filed in 2011 by the NACS, National Retail Federation, other trades and individual merchants.

Carrie Hunt
Carrie Hunt

NAFCU, with other industry trades, filed an amicus brief in this suit in support of the Fed's rulemaking. "Rest assured that NAFCU will continue to work with all of our available resources to advocate on behalf of credit unions in this fight," Hunt told NAFCU members Wednesday.

Wednesday morning, Federal Judge Richard Leon of the U.S. District Court for the District of Columbia overturnedthe Fed's rule implementing the debit interchange fee provisions of the Dodd-Frank Act, or the Durbin amendment. The rule limits the fees institutions can charge for processing debit-card transactions and includes prohibitions on network exclusivity.

Leon left the current Fed rules in effect but is ordering the Fed to write new rules. How long that will take is not yet known. However, Hunt said given the content of Wednesday's court ruling, the new rules "will almost certainly result in lower debit interchange fees for issuers with more than $10 billion in assets, as the court rejected the inclusion of fraud prevention and other costs that were not specifically incurred with each transaction."

Hunt said it's also likely that all debit-card issuers and their network will have to make two methods of authentication available for each signature and PIN transaction.

NAFCU continues to review Wednesday's ruling and will closely monitor the Fed's work in drafting new rules. It will comment on those rules to ensure credit union concerns are heard. NAFCU is also discussing this issue with members of Congress to underscore the depth of the impact of Wednesday's action on the nation's federal credit unions.