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Inside Washington (12/20/2010)

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* WASHINGTON (12/21/10)--Under the Federal Reserve’s proposed debit rules it is exclusivity arrangements rather than interchange pricing that remains unresolved for payment networks, including market leaders Visa Inc. and MasterCard Inc. When the Fed proposed a 12-cent limit on debit interchange fees Thursday, it said it seeks comments on two options that would create exclusive arrangements between issuers and networks. Under either arrangement, smaller PIN-debit networks would benefit at the expense of Visa and MasterCard. Jason Kupferberg, an analyst with UBS Securities, said observers thought that the Fed’s proposal would bring more clarity on exclusivity than on interchange, but just the opposite has occurred (American BankerDec. 20). Most of Visa’s and MasterCard’s revenue is derived from network fees that issuers pay them to carry their brands and process their transactions. “The proposed routing and exclusivity alternatives put retailer profits ahead of consumer protection, choice and convenience,” Visa said in press release issued Thursday … * WASHINGTON (12/21/10)--The Securities and Exchange Commission (SEC) has broadened its investigation into the mortgage industry, inquiring with big banks about the early stages of the securitization process of home loans. The SEC issued subpoenas to Bank of America Corp, Citigroup Inc., JPMorgan Chase & Co., Goldman Sachs Group Inc. and Wells Fargo & Co., the sources said. The SEC’s inquiry began earlier this year when it looked into the foreclosure practices of big banks following allegations that mortgage servicers used inadequate paperwork to evict delinquent borrowers from their homes. Now the SEC is investigating how those mortgages were packaged for sale to investors …

Prepaid debit cards could also see new regs

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WASHINGTON (12/21/10)--Legislation that would eliminate many hidden fees associated with prepaid debit cards and increase transparency regarding prepaid debit card fees was introduced late last week by Sen. Robert Menendez (D-N.J.) The legislation, which was co-sponsored by Sens. Richard Durbin (D-Ill.) and Jeff Merkley (D-Ore.) would focus on reloadable plastic cards that are often used as substitutes for checking accounts, debit cards, and credit cards. According to a release, the legislation would require full fee disclosures at the time of purchase, including a wallet-sized summary of all fees and a toll-free telephone number for customer service. The legislation would also ban the producers of these cards from charging overdraft fees, balance inquiry fees, customer service fees, inactivity fees, account closure fees, and other types of fees. Consumers would also be protected against loss or theft, and would have any funds attached to these cards backed by insurance in the event that the card provider goes bankrupt. The Consumer Financial Protection Bureau and the Federal Deposit Insurance Corp. would issue regulations within nine months of the legislation’s enactment. While the exact number that would be impacted isn’t known at this time, the legislation could impact credit unions, Credit Union National Association (CUNA) Senior Vice President for Compliance Kathy Thompson said. CUNA expects similar legislation to be re-introduced in the 112th Congress, and CUNA will meet with the legislation's sponsors to discuss their concerns. For the full release, use the resource link.

Rep. Frank shares interchange concerns for CUs

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WASHINGTON (12/21/10)--The implementation of still-pending interchange regulations, if not properly crafted, “may have unintended consequences” for credit unions and consumers, Rep. Barney Frank (D-Mass.) recently said in a letter to the Federal Reserve. Limitations on network restrictions, which the legislation has promoted for inclusion under the regulations, should not unduly increase costs for credit unions, community banks or government card programs, Frank added. He also urged the Fed to “ensure that any entity offering debit transaction routing services maintains strong consumer protections, including privacy, data security and fraud protections.” The Credit Union National Association (CUNA) also expressed its concerns to the Fed last week, with President/CEO Bill Cheney saying that the loss of interchange fee income for small issuers and the costs of having to belong to more payment networks will have a "horrendous impact" on credit unions that offer debit cards, as well as their ability to build net worth. The Fed proposal, which was released last Thursday, would cap debit card interchange fees that are paid by merchants to card issuers at 12 cents per transaction. Issuers with under $10 billion in assets would be exempt from the interchange changes. However, Cheney expressed skepticism at the effectiveness of the $10 billion exemption cap, noting that there is nothing in the Fed’s proposal that creates an enforcement mechanism to protect small issuers. The Fed has left its proposal open for public comment until Feb. 22, and CUNA continues to develop a more comprehensive comment letter.