The Federal Reserve's proposed rule limiting debit interchange fees would have a "significant adverse effect on and in some cases dire consequences" for the 70% of credit unions that offer debit cards and the Fed should work with Congress to delay implementation by two years to further study the issue.
Those are among the key arguments made by CUNA in the comment letter it filed with the Fed late yesterday.
CUNA Senior Vice President and Deputy General Counsel Mary Mitchell Dunn wrote that the Fed's proposal doesn't protect small issuers and many of those financial institutions fear that payment networks may not provide a two-tiered structure that differentiates between issuers with assets of over and under $10 billion.
Dunn also criticized the Fed for establishing caps on interchange fees "rather than develop standards to evaluate the reasonableness and proportionality of such fees."
She wrote that the Fed didn't consider fraud prevention and data security costs when writing its proposal and noted that the proposed interchange cap of 12 cents per transaction covers only about half the costs incurred by credit unions in 2009 to offer those programs.
Dunn concluded that if the Fed must issue some form of the proposed rule it should "drop the rate caps and include a set of standards to assess interchange rates; and regulate the routing and exclusivity provisions so that merchants will not be able to steer transactions illegally to large users."
According to the proposed rule, the allowable costs for interchange would be limited to no more than the issuer's allowable costs divided by the number of electronic debit transactions on which the issuer received or charged an interchange transaction fee in the calendar year. Or the issuer could receive debit interchange capped at 12 cents per transaction.
Comments on the Fed's proposed rule were due today and the rule must be approved by April 21 and in effect by July 21.
NAFCU, CUNA and other financial services groups are working hard to convince Congress to pass a law that would at least delay the implementation of the provision on interchange, which was part of the financial overhaul bill that Congress passed last year. Those groups also signed on to a separate comment letter to the Fed, in addition to the individual letters that they sent.
To read the comment letters filed with the Fed on the proposed rule, go to: http://www.federalreserve.gov/generalinfo/foia/index.cfm?doc_id=R%2D1404&doc_ver=1&ShowAll=Yes