In the wake of retailers’ unhappiness with improvements made to the Federal Reserve’s final debit interchange fee rule, CUNA and MasterCard pledged to monitor and report attempts by merchants to steer consumers away from using credit union-issued debit cards.
That was one outcome from a conference call CUNA and MasterCard hosted Wednesday addressing new debit interchange fee income regulations and the payment network’s plans for a two-tiered debit fee structure.
Large retailers are unhappy that the Fed—with the urging of credit unions, leagues, and CUNA—increased the cap on debit card transactions (for issuers with more than $10 billion in assets) from 12 cents per transaction in its initial proposal to roughly 24 cents in the final debit interchange rule. As a result, conference panelists fear retailers may push consumers to non-credit union debit cards, reducing transaction volume and, as a result, fee income.
“We will remain vigilant on this and report any steering behavior to the Fed and to Congress,” says Bill Hampel, CUNA’s chief economist and senior vice president of research and policy analysis. “We encourage credit unions to do that, too.”
CUNA will establish an e-mail address through which credit unions can report incidents of merchant steering, notes Mary Dunn, CUNA’s senior vice president of regulatory advocacy.
Credit unions also can report such incidents to MasterCard’s customer service department, says Shawn Miles, MasterCard Worldwide’s global head of public policy.
“This is something we’ll monitor diligently,” he says. “We look forward to any report of merchants that attempt to not accept or to frustrate the acceptance of credit union cards. We have an ‘honor all cards’ rule to prevent merchants from discriminating against one issuer versus the next.”
That said, Miles admits MasterCard won’t be able to police the nation’s eight million U.S. merchant locations on its own. “Our ability to do that is based on reports from consumers and [financial institutions] regarding merchant behavior,” Miles notes. “We will work with CUNA and others to address concerns over acceptance.”
One thing working in credit unions’ favor: The Fed pledged to examine the effectiveness of the small issuer exemption after six and 18 months. This will help keep merchants on the straight and narrow, Hampel says.
“If the Fed sees merchants acting egregiously, we can go back to Congress and strengthen the exemptions,” he says. “It’s some motivation for merchants to not go overboard on this.”
However, Miles warns the retail lobby will continue to seek increased regulation on interchange fees, including those for credit cards and prepaid cards. “We need the support of CUNA and credit unions to fight against further regulation of interchange fees and further price controls. We need to articulate the harms that come as a result.”
Miles emphasized that although merchants can’t prohibit consumers from using a particular card, nothing prevents them from encouraging consumers to use a certain payment method, such as offering discounts for debit versus credit, PIN-based versus signature cards, or using cash.
Important dates to keep in mind, Miles says, include:
- Oct. 1, 2011, when interchange fee caps go into place for institutions with $10 billion or more in assets;
- April 1, 2012, when issuers comply with exclusivity provisions; and
- April 1, 2013, when general use prepaid cards must comply with exclusivity rules.
MasterCard will implement a two-tier debit interchange fee structure and will make no changes to its existing rate structure, “subject to market forces,” Miles says.
In September, MasterCard will offer an online registration process through which members certify whether they’re exempt from the interchange fee regulation.
Miles pledged to work with the Fed to seek clarity, when needed, and “to come up with a more balanced approach” as the agency regulates interchange fees.
Dunn lauded several entities for helping to improve the debit interchange fee regulation, and thanked CO-OP Financial Services for its "ongoing assistance."
“Is the final rule what we want? Absolutely not,” she says. “But it’s a large step in a positive direction in terms of fee income. The improvement in the rule is the result of everyone’s hard work, including leagues, credit unions, and credit union partners.”
The CUNA/MasterCard interchange conference call will be available on CUNA’s website. A conference call with Visa is forthcoming.