CUNA and NAFCU were working to minimize the damage to creditunions on interchange fees and other aspects of a bill tostrengthen credit card regulation that was being debated in theSenate at press time.
The bill, sponsored by Senate Banking Committee ChairmanChristopher Dodd (D-Conn.) and the panel's ranking Republican, Sen.Richard Shelby (R-Ala.), would go further than the bill passedearlier this month by the House. It would expand some of theregulations approved by the Federal Reserve and the NCUA scheduledto take effect July 1, 2010.
The trade associations were especially eager to defeat an amendmentthat would allow merchants to give discounts to customers who payin cash or with debit cards, rather than by credit card, becausecredit card companies charge higher rates-interchange fees-forprocessing credit card payments. The amendment was sponsored bySen. Majority Whip Richard Durbin (D-Ill.).
The two credit union trade associations, which are allied with theAmerican Bankers Association and the Independent Community BankersAssociation on this issue, said the amendment would hurt bothfinancial institutions and consumers.
In a letter to lawmakers, the four trade groups said the amendmentwould “permit merchants to discriminate against payment cardsissued by a particular financial institution, including communitybanks and credit unions.”
They also said that the rules change would adversely impact theeconomics of offering card products, and credit unions and banksmight exit that business “and consumers and our overall economywould suffer.”
National Retail Federation Senior Vice President for GovernmentRelations Steven Pfister said that by reinforcing retailers'ability to offer discounts, the amendment would “directly helpreduce the prices that consumers pay for goods and services.”
The Senate bill contained several other provisions that CUNA andNAFCU opposed, including: a requirement that a card issuer reassesscustomers' interest rates every six months if the issuer raises itsrate; a ban on raising rates if a consumer is more than 30 dayslate in paying a bill; a provision mandating that gift cards bevalid for at least five years with more transparent fees; and thecreation of a Financial Products Safety Commission.
The Senate bill also contains provisions that were in theHouse-passed bill, including a ban on interest rate hikes onexisting balances and double-cycle billing. Cardholders could avoida higher rate by canceling the card before the rate increase takeseffect.
CUNA and NAFCU have expressed support for some of these provisionsbut say that others would prevent credit unions that issue creditcards from managing risk effectively.
The groups both expressed concern that certain provisions, such asa requirement that there be a 45-day notice before rate increases,were too burdensome. They also oppose a provision mandating thatcredit card issuers set up a system so consumers can notify them ifthey want to opt out of automatic overdraft coverage on credittransactions if fees are involved.
Both associations also said that credit unions would faceregulatory burdens caused by the measure taking effect earlier thanthe Federal Reserve-NCUA regulations. They also complained that theadditional reporting requirements would be burdensome, and theinterchange fee provision could result in the publication ofpricing information that would be used by potentialcompetitors.
CUNA and NAFCU also each raised individual concerns in theirletters to senators.
CUNA President/CEO Dan Mica wrote that the “detailed andburdensome” procedures for establishing over-the-limit access on acard-by-card basis could curtail card use when consumers need itmost.
NAFCU Senior President Vice President of Government Affairs DanBerger wrote senators objecting to a provision mandating that allpayments above the minimum be applied to balances with the highestrate. He said this could “create safety and soundness issues forfinancial institutions, as it minimizes their ability to managerisk.”
President Obama, who has said he would like to have a bill on thesubject passed by Memorial Day, sought to apply pressure onlawmakers by holding a town hall meeting on the subject in NewMexico last Thursday.
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