Addressing Interchange Fees & NCUA Concerns

CUs want to know why NCUA is planning a 12% budget increase.

January 31, 2011

Major concerns that surfaced in 2010 remain at the top of the Credit Union National Association’s (CUNA) regulatory advocacy efforts for this year.

A central focus is the regulation of debit interchange fees and credit unions’ concerns regarding examination practices and the National Credit Union Administration’s (NCUA) budget.

Debit interchange fees

On December 16, 2010, the Federal Reserve Board issued for comment, through January 27, its much anticipated (or more to the point, dreaded) proposal to implement the interchange amendment of the Dodd-Frank Act.

The agency was given a difficult, if not impossible, task in writing rules under the interchange amendment because the act’s language is unclear and contradictory in key areas that matter most to credit unions.

While the amendment includes an exemption from the limits that will apply to larger issuers—all but three of the 70% of credit unions that offer debit cards are exempt—there’s no direct mechanism provided in the statute to enforce the exemption for small issuers.

In addition, there are provisions in the statute that allow merchants to decide how a debit transaction will be processed. That generates real concern that merchants will direct transactions to the larger issuers to take advantage of their lower interchange rates.

And all of this angst is even before we turn to the proposed
rule, which truly provides a cold example of the phrase, “adding insult to injury.”

In a number of discussions with Fed staff and in letters to the chairman and governors of the Federal Reserve, CUNA representatives and others urged the agency to include a means to enforce the exemption. In response to our efforts, and those of others, the proposal in essence acknowledges that Congress intended to protect small issuers’ debit interchange fee income. But the proposal doesn’t even attempt to give real teeth to the exemption.

Moreover, the proposal sets the interchange fee cap at 12 cents for larger issuers, which is far too low in relation to the actual costs of providing debit cards. And the cap doesn’t even include fraud prevention costs, as the law directs.

If the exemption doesn’t work for small issuers, all credit unions may have to operate under the rate cap that’s designed for large issuers.

CUNA is pursing dramatic improvements in the proposal as aggressively as it possibly can. Immediately after the proposal was issued, in an initial letter, CUNA President/CEO Bill Cheney communicated to the Fed his strongest opposition to the proposal.

CUNA also will file detailed comments well before the end of the comment period. We’re working with policy makers in Congress and in the administration to urge the Fed to improve the proposal.

Most important, we’ve urged leaders in Congress to hold a hearing on the law and whether the exemption can be implemented in a meaningful way.

Credit unions that care about this issue are urged to comment to the Fed via CUNA’s Operation Comment at

Examination and budget Issues

Even strong NCUA supporters have raised questions about rampant concerns with examiner practices and the agency’s planned 12% budget increase for 2011, which are out of sync with other federal agencies.

Credit unions are confused
about perceived or real hostility from examiners and the lack of ongoing communication on key issues such as the NCUA budget. CUNA will provide additional resources to the credit union system on these issues.

In addition, CUNA will continue to urge NCUA to work with the credit union system to achieve meaningful improvements in these areas while continuing to support the agency’s efforts to maintain fair and reasonable safety and soundness.


MARY MITCHELL DUNN is senior vice president/deputy general counsel for the Credit Union National Associa­tion. Contact her at 202-508-6736 orat