Interchange Rule Draws Flak
The Federal Reserve's most recent update of its rule implementing the Durbin amendment makes it a bit better for most CUs but leaves most of their deep concerns about the measure untouched.
That is the consensus of card processing and CUSO executives charged with helping credit unions craft a debit strategy in the face of what may be a slowly declining source of income.
For those large issuers, the Fed increased the regulated interchange rate from the initial effective cap of 12 cents per transaction to one that is at least 21 cents per transaction plus 5 basis points of the transaction as an ad valorem amount meant to cover the costs of fraud. The rule included an additional penny if the card issuer can show it has taken reasonable steps to prevent fraud.
In practical terms, for an issuer of over $10 billion in assets, the interchange on a $50 transaction went from being possibly as low as 12 cents under the initial rule to a bit more than 22 cents under the modified rule, assuming the issuer takes the steps to qualify for the additional one cent fraud prevention premium.
But there are also indications that the Federal Reserve is aware of the potential decline and that it will revisit the regulation and another analyst believed this is almost a certainty.
Andy Brown, director of product marketing for ACI Worldwide, a payments software developer and a long time international debit industry analyst, said such regulatory tinkering has precedent around the world.