We believe the credit union movement received good news on June 29 when the Federal Reserve Board announced its rules covering debit card interchange fees, and routing and exclusivity restrictions.
For credit unions with under $10 billion in assets, your interchange rates are likely to show little or no decline for the remainder of 2011. For these institutions, we believe all networks will implement a two-tier system maintaining interchange at rates near the current $0.44 per transaction average. All members of the Fed expressed concern over their inability to enforce the exemption and were clearly exerting influence on the networks. In addition, a consensus item was adopted to report data regarding the exemption over the next 18 months.
For non-exempt institutions, the Fed set the interchange fee cap at $0.21 per transaction, with an ad valorem component of five basis points of the value of a transaction to reflect a portion of fraud losses. Additionally, a fraud-prevention adjustment of $0.01 is available to issuers that implement effective fraud prevention policies and procedures.
The higher cap is clearly an improvement on the proposed $0.12 cap. The Fed obviously heard our concerns expressed in the historic grassroots campaign conducted by credit unions, leagues and industry associations. We can all take pride in this and related changes found in the rules.
It was also good news that the more manageable version of the exclusivity provision was adopted, meaning that issuers will need to belong to two independent networks, such as one PIN and one signature network, as long as they are unaffiliated.
If your credit union is currently VISA-exclusive (VISA for signature and Interlink for PIN) or MasterCard-exclusive (MasterCard for signature and Maestro for PIN), you will need to add an unaffiliated PIN network (such as STAR, Pulse or NYCE). You do not need to add a second signature network to be compliant.
Thankfully, the less manageable exclusivity provision requiring two unaffiliated networks for each type of authorization (PIN and signature) was not included in the final rule.
The effective date for interchange fee caps is October 1, 2011, while the deadline for compliance with the exclusivity provision is April 1, 2012.
CO-OP is confident that our industry associations will continue to work with the Fed to improve the rule further to ensure small issuers are protected from the impact of the debit interchange limits, as Congress said they would. We will also continue to keep you informed of these developments.
Thank you.
CO-OP Financial Services