Credit, Debit Card Legislation Could Be a 'Disaster' for CUs

Opposition by NAFCU and CUNA to legislation that could negatively impact credit unions is not unusual. But recent language used by both organizations to oppose legislation that would extend the Durbin Amendment routing requirements to the credit card market appeared to take a more aggressive stance.

In short, the Federal Reserve has proposed a new rule that would require debit card issuers “to offer two unaffiliated networks, which must also be capable of processing transactions under a new framework of expectations surrounding merchant type, transaction and location,” according to a statement from CUNA.

Communications sent on Tuesday by NAFCU and Wednesday by CUNA to the Federal Reserve characterized this legislation as a potential “disaster,” a “threat” and “damaging” to credit unions and the U.S. payment system as a whole.

In its letter to the Federal Reserve, CUNA stated, “The proposed changes will likely accelerate the decline in revenue from debit card transactions while increasing compliance costs associated with the requirements to ensure that all possible debit transactions have two card networks available. Furthermore, adding layers of unnecessary complexity onto the debit card networks can only increase cybersecurity risks. These costs and reductions of revenue will likely further accelerate the loss of locally owned and operated cooperative credit unions, which can make the delivery of financial services to those of greatest need even more challenging.”

NAFCU Regulatory Affairs Counsel James Akin wrote, “NAFCU requests that the Board immediately withdraw the proposed modification to Regulation II. To the extent that the Board continues in this rulemaking, NAFCU requests that the Board provide further analysis on the impacts of the proposed modification on the payment routing ecosystem, and that it consider the severe repercussions that the modification would have on credit unions and their members due to increased fraud risk and compliance costs, and decreased interchange income.”

The Fed issued the proposed changes to Regulation II back in May.

In a statement, Akin argued that “due to the fundamental differences between the modification to Regulation II and its current requirements, the costs associated with the proposed rule would be impractical and damaging to undertake for many credit unions.”