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NEW: Appeals court to closely examine lower court interchange ruling

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WASHINGTON (1/17/14, UPDATED: 12:10 P.M. ET)--U.S. Court of Appeals for the District of Columbia Circuit Judges David Tatel, Harry Edwards, and Stephen Williams asked questions at oral arguments today that cast doubt that they will fall in line with a lower court ruling that sought to overturn the Federal Reserve's debit interchange fee cap regulations.

From left, CUNA General Counsel Eric Richard, Deputy General Counsel Mary Dunn and Assistant General Counsel for Special Projects Robin Cook discuss today's interchange arguments outside the U.S. Court of Appeals. (CUNA Photo)
The case is known as NACS, et al. v. Board of Governors of the Federal Reserve System. Based on questions asked of counsel arguing at the hearing, the judges seemed inclined to take a much harder look at U.S. District Court for the District of Columbia Judge Richard Leon's July decision to strike down the Fed's interchange fee cap, Credit Union National Association regulatory staff said. Leon last year put a stay on his decision, pending the outcome of the case.

They heard from the Federal Reserve, a coalition of financial services groups, including CUNA, and merchants.

The merchants have argued that the Fed overstepped its bounds, allowed too many costs to be considered, and set too high of a cap. The three judges seemed to dismiss out of hand the position that merchants took in district court earlier this year. "They seemed to recognize that additional costs can be properly considered under the statute," CUNA General Counsel Eric Richard said.

Lawyers that spoke on behalf of financial services coalition articulately presented credit union concerns, he added.

Merchants brought the case against the Fed in 2012, alleging that the Fed made errors in implementing a final rule that caps debit interchange fees for issuers with assets of $10 billion or more at 21 cents, and allows certain other charges to cover fraud losses and fraud prevention.

CUNA and the coalition in the past have argued that the Fed cap is too low and does not allow debit card issuers to cover their costs and a reasonable rate of return on their investments. The coalition has underscored that consumers have not seen any pricing benefits for products and services promised by the merchants when they were fighting for a government-set cap on what card issuers may charge for their services.

NEW: CUNA, merchants, Fed offer oral interchange arguments

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WASHINGTON (1/17/14, UPDATED: 9:30 A.M. ET)--Oral arguments have just begun as the Credit Union National Association and financial services partners, the Federal Reserve, and merchants today present their views before U.S. Court of Appeals for the District of Columbia Circuit Judges David Tatel, Harry Edwards and Stephen Williams.
 
The merchant group is speaking first, and will have 25 minutes to make their presentation. The CUNA coalition will speak for 10 minutes, and the Fed representatives will speak for 15 minutes.
 
CUNA's partners are the American Bankers Association, Clearinghouse Association, Consumer Bankers Association, Electronic Payments Coalition, Financial Services Roundtable, Independent Community Bankers of America, Midsize Bank Coalition of America, National Association of Federal Credit Unions, and National Bankers Association. The case is known as NACS, et al. v. Board of Governors of the Federal Reserve System.
 
Merchants brought the case against the Fed in 2012, alleging that the Fed made errors in implementing a Dodd-Frank-imposed debit interchange fee cap. The Fed's final rule caps debit interchange fees for issuers with assets of $10 billion or more at 21 cents. The regulation also allows card issuers to charge an additional five basis points of the value of the transaction to cover fraud losses. An extra penny may also be charged by financial institutions that are in compliance with the Fed's fraud-prevention standards.
 
Judge Richard Leon of the U.S. District Court for the District of Columbia in July moved to strike down the Fed's interchange fee caps, but later issued a stay to keep the Fed rules in place during the court proceedings.
 
CUNA and the coalition in the past have argued that the Fed cap is too low and does not allow debit card issuers to cover their costs and a reasonable rate of return on their investments. The coalition has underscored that consumers have not seen any pricing benefits for products and services promised by the merchants when they were fighting for a government-set cap on what card issuers may charge for their services.
 
Watch News Now for more on this morning's arguments.

CompBlog Wrap Up: CU questions on new mortgage rules

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WASHINGTON (1/17/14)--In this month's CompBlog Wrap-Up, the Credit Union National Association answers key credit union questions regarding the Consumer Financial Protection Bureau's new mortgage regulations, addressing mortgage servicing policies, homeownership counseling list requirements, late fees, and other issues.

The Wrap-Up also notes that compliance perfection is not expected immediately, and outlines the CFPB's plans for 2014, higher-priced mortgage loan appraisal rule changes, and guidance on student loans, regulations Z and X, deposit advance products and social media.

And, as it does every month, the CompBlog Wrap-Up lists the upcoming effective dates of new regulations, important compliance articles and reports to read, as well as CUNA training programs.

For more of the CUNA CompBlog Wrap-Up, and other compliance gems, use the resource link.

Risk-based capital, derivatives to be discussed at Jan. 23 NCUA meeting

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ALEXANDRIA, Va. (1/17/14)--A proposed rule on risk-based capital is on the agenda for next week's National Credit Union Administration's open board meeting. Also on the list of considerations: a proposal to authorize derivatives to manage interest rate risk (IRR).
 
The current 7% leverage capital standard was set by statute in 1998. While only the U.S. Congress can change the statute, NCUA Chairman Debbie Matz said in July that the recent financial crisis and changes in the ways the industry operates means the agency must make changes to how it implements the law by adopting a more flexible and forward-looking approach.
 
The Credit Union National Association has supported net worth standard changes that better reflect risk than the present approach does, but which will not simply add net worth requirements to the current system. CUNA has also been urging the agency to adopt a more productive approach to rulemaking that focuses on problem areas rather than issuing rules with blanket applicability, regardless of the credit unions level of risk. CUNA's Examination and Supervision Subcommittee has met with NCUA officials on the capital ratio issue.
 
Earlier this week, CUNA's News Now reported that NCUA board member Rick Metsger said fewer than 200 credit unions would be required to make adjustments under the risk-based capital proposal that will be discussed next Thursday.
 
Regarding the derivatives proposal, CUNA supported the NCUA's efforts to solicit comments on authorizing the instruments to manage IRR, but did not support a number of the key provisions of the proposal.
 
For instance, one aspect under consideration that is of deep concern: Whether application and supervision fees should be imposed in order for credit unions to gain derivatives authority.

CUNA adamantly opposes this approach. "If derivatives reduce IRR, then NCUA should be encouraging credit unions to make appropriate use of permissible derivative options instead of retiring barriers to their use, such as fees to apply or for supervision," CUNA Deputy General Counsel Mary Dunn said in a comment letter.

Also on the Jan. 23 open meeting agenda:
  • NCUA's Strategic Plan for 2014 through 2017, and Annual Plan for 2014 and 2015; and,
  • The Federal Credit Union Loan Interest Rate Ceiling.
Watch CUNA's News Now and NewsNowLiveWire for full coverage of the meeting. CUNA's Regulatory Advocacy Report will also provide important details.

CUNA, Fed, merchants on for interchange oral arguments this morning

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WASHINGTON (1/17/14)--A trio of U.S. Court of Appeals for the District of Columbia Circuit Judges today will hear interchange oral arguments from the Credit Union National Association and coalition partners, the Federal Reserve, and merchant representatives.

Circuit Judges David Tatel, Harry Edwards and Stephen Williams will hear the arguments in the ongoing debit interchange case known as NACS, et al. v. Board of Governors of the Federal Reserve System.

The hearing is scheduled to start at 9:30 A.M. (ET) and will feature 25 minutes of arguments from merchants, 10 minutes from financial services representatives and 15 minutes from the Fed.

The case centers on a merchant coalition challenge to the Fed's implementation of a Dodd-Frank Act-imposed debit interchange cap. The merchants allege the cap is too high. CUNA and its partners maintain that the cap, in fact, is too restrictive.

Watch News Now for coverage of the hearing.