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ARLINGTON, Va. – A steadily rising volume of both transactions and cards have helped reduce credit unions’ pain from a one-time 33% hit they took in the interchange they receive from their so-called signature debit products. Signature debit transactions are those conducted with a Visa or MasterCard branded card that is linked to the cardholder’s share draft accounts and in which the cardholder validates their transaction with a signature, as they do with credit cards. Until April of 2003, retailers who accepted Visa and MasterCard credit cards were required to accept the Visa and MasterCard branded debit card under what was commonly known as the “honor all cards” rule. This enabled the card associations and debit card issuers to charge an interchange rate for the signature debit transactions significantly higher than the rate for transactions which the cardholder validated with a Personal Identification Number via one of the ATM/EFT networks. Retailers, led by Wal-Mart, cried foul and sued Visa and MasterCard over the discrepancy, alleging that the “honor all cards” rules violated Federal anti-trust statutes and arguing that they had been damaged by the higher interchange rates. Faced with a federal court that appeared receptive to the retailers’ arguments, the two card associations settled the case in late April and significantly changed the financial picture from their debit cards. As part of the deal, Visa and MasterCard agreed to both pay the retailers directly out of their reserves to the tune of between $2 billion and $3.5 billion together and, most importantly for the card issuing credit unions, to cut the signature debit interchange rate by 33% for the balance of 2003. The litigants agreed as part of the settlement that a new interchange rate would go into effect in 2004, but negotiations on what the new rate should be have moved slowly. Both associations have announced that, for the foreseeable future, interchange rates would remain at their 2003 levels. Wal-Mart has also stated that, unless MasterCard presents a better deal, its branded check cards would be unwelcome at its cash registers as of February 1, 2004. But industry observers expect MasterCard and the retailer will reach an accord before the deadline. All this has meant a lot of instability in the signature debit industry and might have been expected to cause credit unions a lot of pain in income from cards. At least one big debit card issuing bank has sued the associations because of the interchange loss. But credit unions, by and large, have found that the steady growth in both the number of check cards they issue as well as how much they are used have helped ease the economic loss from the interchange cut. For example, in just the second quarter of this year, Visa’s check cards increased by 10% over the year before, to 133 million, sales increased almost 20% to almost $71 million and volume increased by almost 16% to almost $107 million. -

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