WASHINGTON–CUNA, NAFCU and the American Association of Credit Union Leagues have joined with numerous banking groups in a new letter sent to the Federal Reserve urging it to reject merchant requests for further changes to Regulation II governing debit card interchange fees.
As CUToday.info reported here, the Fed has indicated that at its Oct. 25 meeting it will consider proposed revisions to its debit interchange fee cap. Details of the proposal were not released. The cap is currently set at 21 cents per transaction. Merchants groups have hailed the Fed’s announcement.
What’s Being Requested
In the new letter signed by the credit union groups, the organizations call on the Fed to:
- Share more details on the potential revisions before it meets to discuss the rule
- Collect and publish comprehensive data on the costs of Reg II on regulated entities and the consumers
- Provide an opportunity to meet with the Board of Governors and “rebut assertions made by merchants,” which are “riddled with errors, misleading statements, and false comparisons that appear designed to deceive and ignore the very real impact Regulation II has already had on consumers across the country.”
‘Cherry Picking’
“As in the merchant groups’ litigation against the Federal Reserve on Regulation II, there is consistent cherry-picking of facts and omission of ‘inconvenient evidence’ that contradicts their advocacy efforts,” the groups wrote. “We urge the Board not to be misled. Contrary to merchant talking points, Regulation II has caused significant real-world economic harm to our members and their customers — and its recent expansion by the Board is compounding that harm. The Durbin Amendment’s ‘exemption’ of smaller financial institutions has proven to be largely illusory, as the Federal Reserve’s own data shows that regulatory thresholds in the interchange market do not insulate smaller issuers from harm.”
Disappointment Expressed
The groups further expressed disappointment that the Federal Reserve has so far refused to acknowledge that community financial institutions are facing rising costs and falling revenues because of existing Regulation II rules.
“Adding to this disappointment is the Board’s willingness to acquiesce to merchant requests regarding practices they consider to be ‘unfair,’” the letter states. “While we acknowledge and appreciate the important role that merchants play in the payments ecosystem, ensuring the soundness and sustainability of all stakeholders, including debit card issuers of all sizes — including community banks and credit unions, many of which are already facing rising debit costs and declining interchange revenues — is, in our view, a more important policy imperative for a financial regulator.
“The manipulation of card-not-present transactions is introducing fraud risks and creating operational problems for debit card issuers,” the letter goes on to say. “The cumulative and underappreciated result of these developments is a reduction in consumer access to affordable core financial products and higher costs.”
Seeing Through the ‘Distortions’
The letter says the signatories believe the Federal Reserve’s economists are “savvy enough” to see through the “distortions, misrepresentations, and (in some cases) outright falsehoods on which these trade associations base many of their arguments.”
Despite that, the groups are asking to meet with the Fed prior to the Oct. 25 meeting.
“Neither the flawed petition nor the subsequent and similarly flawed meeting materials should form the basis for the Board’s posture on these issues,” the letter states, adding, “This is not merely a question about routing or interchange, and it does not only affect thousands of financial institutions. Hundreds of millions of consumer checking accounts are inexorably linked to debit card processing and as the Supreme Court has found, cardholder interests matter too.”
The Signatories
In addition to the CU organizations, other groups signing the letter include the American Bankers Association, Consumer Bankers Association, Electronic Payments Coalition, Independent Community Bankers of America, Mid-Size Banks Coalition of America, and the National Bankers Association.