CUNA Interchange Update

Interchange Talking Points - One page document outlining developments in interchange and payments.

 CUNA Testimony

Testimony of Frank Michael, President and CEO of Allied Credit Union – 2/17/11
House Committee on Financial Services Subcommittee on Financial Institutions and Consumer Credit


Credit: In July 2012, a settlement regarding credit card interchange was agreed to by merchants, large card issuing banks, MasterCard and Visa. The settlement has two parts: 1) an award for past damages of $6.05 billion (from approximately 2004 – 2012); and 2) forward-looking provisions including : a) a merchant surcharging procedure for credit card transactions, b) merchant buying groups to negotiate for interchange, c) a temporary reduction in credit card interchange to provide a transition until surcharging and buying groups have their intended impact and leverage on interchange (eight months beginning in July 2013, valued at approximately $1.2 billion), and d) continuing court jurisdiction over the claims through July 2021. Merchants have the ability to opt out of the past damages, but cannot opt out of the forward-looking provisions. Parties have until May 2013 to file objections. Credit unions are not parties to the litigation but will be impacted by the settlement.

Debit: The 2010 Durbin Amendment in the Dodd-Frank Act directed the Federal Reserve to set a debit interchange rate for large debit card issuers (over $10 billion in asset size) and regulate routing and exclusivity according to certain factors. The Federal Reserve debit regulation provides that large debit card issuers cannot collect debit interchange of more than 21 cents, plus 5 basis points on an ad valorem basis and, in some cases, a 1-cent fraud-prevention adjustment. The debit rate regulation became effective in October 2011 and the debit routing and exclusivity regulations became effective in April 2012. Litigation initiated by the merchants objecting to the Federal Reserve debit interchange rate remains pending. The merchants allege the Federal Reserve included too many factors in determining the rate and therefore the rate is too high. CUNA joined other financial services trade associations in an amicus brief to the court arguing, the Federal Reserve should consider more factors and therefore the rate is too low.


Credit: Credit card issuers and networks are meeting with key offices on the Hill to review the credit card interchange settlement and answer any questions that may arise. At this point, most offices believe that the credit card settlement terms eliminate the need for congressional action and that the “case is closed.”

Debit: In light of the fights over the 2010 Durbin Amendment and the 2011 Tester-Corker Amendment vote on debit card interchange, a high degree of political fatigue still exists in congressional offices. Therefore, it is not expected that Congress will revisit debit interchange (in a substantive manner) in the foreseeable future. The Federal Trade Commission (FTC) released a report in December 2012 regarding the effectiveness of the small issuer exemption included in the Durbin debit language of the Dodd Frank Act. The report was issued because Senator Durbin inserted language in an appropriations bill directing the FTC to report to Congress. While the FTC expects to continue to follow this issue, it is unclear whether appropriations language directing a report will be repeated. In March 2013, the Federal Reserve issued a report to Congress based on their survey of issuer costs, concluding that no further changes are needed to the regulated debit interchange rate at this time. The report also noted that exempt institutions (under $10 billion in asset size) saw a decline in average per transaction interchange revenue by approximately 4 cents.


Because of the merchant surcharging provision within the credit card interchange settlement, state legislatures are turning their attention to the issue. States with filed surcharge prohibition legislation (as of March 18, 2013):

1. Arkansas

2. Hawaii

3. Illinois

4. Indiana – surcharge language amended out of omnibus banking bill

5. Kentucky

6. Maryland

7. Michigan

8. Mississippi – passed: prohibits surcharges on state-issued credit cards

9. Missouri

10. Nevada – confusingly prohibits surcharging but allows for surcharging to "offset the cost of that fee" associated with accepting payment

11. New Jersey

12. New Mexico

13. Pennsylvania

14. Rhode Island

15. South Carolina

16. Tennessee

17. Utah - passed

18. Vermont

19. Washington – passed: original language prohibiting surcharge amended to define disclosure requirements for surcharging

20. West Virginia

Reports indicate that New Hampshire may file surcharge prohibition legislation as well. (New Hampshire Senate has no bill introduction deadline but House has April 4 crossover deadline.)

Ten states currently have laws prohibiting surcharging: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas. Of those states, the following are considering or have filed legislation to modify their surcharge prohibition (as of March 18, 2013):

1. Maine – not yet filed. Official filing deadline has passed

2. New York – defines surcharge disclosure requirements

3. Texas – allows municipalities to surcharge

Interest is expected to remain high in the states through the conclusion of their current legislative sessions.

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