Credit cards are key to member engagement

Fed debit card proposal would increase complexity, costs

May 25, 2021

A proposed Federal Reserve regulation could adversely impact credit unions by increasing regulatory burden, CUNA wrote to the Senate Banking, Housing, and Urban Affairs Committee Tuesday. The committee heard semiannual testimony from Fed Vice Chair for Supervision Randal Quarles during the hearing.

“The Board’s proposed updates to Regulation II (12 C.F.R. pt. 235) that seeks to provide ‘clarification’ to the regulation of debit card routing requirements,” the letter reads. “In our view, the proposal represents much more than a clarification but instead would add new requirements to Regulation II that would increase the complexity and costs associated with debit cards.

Credit unions can comply with the existing regulations by issuing debit cards carrying a signature network and an unaffiliated network. The proposed rule would require 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.

“The proposed rule does not properly consider technological challenges, particularly enablement challenges at smaller issuers that rely on third-party technology vendors,” CUNA’s letter reads. “Although changes and clarifications may sound simple when written, the reality is each change in requirement creates additional operational and compliance burdens on top of lost revenue used to support a debit card program itself.

The beneficiary of these technical changes is not consumers or small businesses, but large retailers in position to exploit routing requirements to their advantage,” it adds.

CUNA is currently working on detailed comments to send to the Fed regarding credit union concerns with this proposal.