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NAFCU, along with other financial services industry trade groups, wrote to the Federal Reserve Friday urging the agency to delay the effective date of its final rule that requires debit card issuers to enable and allow merchants to choose from at least two unaffiliated networks for card-not-present (CNP) transactions, such as online purchases.

The rule modified Regulation II, which covers debit card interchange fees and network routing exclusivity.

NAFCU previously urged the Fed to withdraw the modification flagging the negative impact on credit unions: If debit card issuers do not currently have this capability on their debit cards, they will need to reissue all debit cards by July 1 – a huge undertaking, especially for smaller institutions.

This rule requires issuers to enable one single-message and one dual-message network; enabling a single-message network for CNP transactions would ultimately lead to a higher risk of fraud, as credit unions may not trust these networks to handle increased risk of fraud.

NAFCU has cautioned that merchants will likely opt for cheaper, untested networks, taking away banks and credit unions’ pool of resources to protect consumers and their data. In addition to the loss of interchange revenue, institutions would incur additional compliance costs, costs associated with mass re-issuance of debit cards, and increased fraud protection and security costs to combat less secure networks. 

In Friday’s letter, the groups reiterated many of these concerns, including the tremendous burden on smaller issuers.

“Specifically, the modifications that issuers need to make to their own systems to comply with the Final Rule fall most heavily on small community bank and credit union issuers,” they wrote. “These small issuers will have difficulty getting the attention of national networks and service providers and, as a result, will be stuck at the back of the queue or cobbling together a patchwork of more regional, and potentially less reliable or scalable networks. Moreover, some will be forced to default to the first-available solutions, even if there are better solutions they would select if given more time. Simply put, more time means more flexibility, more options, and better outcomes.”

The trades highlighted that more than 1,700 financial institutions had also raised similar concerns in their own comments on the rule to the Fed. The groups asked the Fed to delay the rule’s implementation to Jan. 1, 2025 – rather than July 1, 2023 – to give debit card issuers time to fully comply “while continuing to protect and serve consumers and the broader U.S. economy.”

NAFCU will continue to advocate against interchange-related proposals that could harm credit unions and their 134 million members.