Interchange Fees and Routing

The Dodd-Frank Act sets down new rules for interchange fees and debit card transactions.

September 25, 2011

The Dodd-Frank Act amended the Electronic Fund Transfer Act by adding Section 920 regarding interchange transaction fees and rules for debit card transactions. The Federal Reserve Board’s new Regulation II implements Section 920, establishing standards for debit card interchange fees and prohibiting network exclusivity arrangements and routing restrictions.

Regulation II establishes a base fee cap of 21 cents plus five basis points of the transaction amount to cover fraud losses. This provision is effective on Oct. 1, 2011. The Fed published an interim rule allowing an issuer to receive an additional one cent per debit card transaction if the issuer satisfies certain fraud prevention requirements. The interim rule also is effective on Oct. 1, 2011. Highlights include:

  • Small issuer exemption. The law and regulation exempt credit unions and banks with assets less than $10 billion from the interchange fee provisions, but not from the routing requirements. The $10 billion in assets threshold includes assets of the credit union as well as all of the institution’s affiliates, which is defined to include credit union service organizations. These entities aren’t required to meet the price-setting requirements of the rule, but are directly subject to the routing and exclusivity provisions. A credit union‘s asset size will be determined based on its total assets as of Dec. 31 of the prior year. 
  • Network exclusivity and routing requirements (applicable to all issuers). The exclusivity and routing provisions apply to all debit card issuers, regardless of asset size, as required by the Dodd-Frank Act. This is the area of the regulation that directly requires affirmative compliance by credit unions that issue debit cards. Issuers must comply with these requirements by April 1, 2012.

Regulation II requires a card issuer or payment card network to ensure debit cards can be processed on at least two unaffiliated networks, for example, one signature network and one PIN network if the card has both signature and PIN capabilities. 

And the regulation prohibits issuers and payment card networks from limiting a merchant’s ability to choose the network on which a transaction is routed, with respect to those networks on which the debit card is enabled to be used. 

Visit CUNA’s e-Guide to Federal Laws and Regulations at

Next: HUD Clarifies RESPA Rule

HUD Clarifies RESPA Rule

The Department of Housing and Urban Development (HUD) issued technical and clarifying amendments to its Real Estate Settlement Procedures Act (RESPA) rule in July. The majority of the amended RESPA regulations were effective Jan. 1, 2010. But HUD identified certain areas where additional clarification would be helpful. These amendments were effective on Aug. 10, 2011:

  • Good Faith Estimate and related fees. The changes make clear that lenders and mortgage brokers are prohibited from charging any fees for providing a Good Faith Estimate (GFE) other than a reasonable fee for pulling a credit report. The regulation specifically prohibits charging fees for appraisals, inspections or similar settlement services, or any other fees (beyond the credit report fee) until after the borrower has received the GFE and  proceeds with the loan.
  • Expiration of GFEs. Loan originators are bound by the terms and settlement charges featured in the GFE unless a revised GFE is provided or the GFE has expired. GFEs are valid for 10 business days (or a longer period provided by the originator) from the date provided to the borrower. If the borrower doesn’t express intention to move forward with the application within that time, the GFE will expire and the credit union is no longer bound by its terms.  
  • Changed circumstances and revised GFEs. HUD reiterated that certain circumstances could result in a revised GFE. The revised GFE may feature increased charges but only to the extent that the changed circumstances actually resulted in higher charges. The amended regulation now includes a discussion on borrower-requested changes that could lead to revising GFEs. HUD also discussed interest-rate changes and the impact to interest-rate dependent terms/charges that would require credit unions to issue a revised GFE when those terms/charges increase. 
  • New construction home purchases. In transactions involving new construction home purchases, settlement can occur more than 60 calendar days from the time borrowers receive GFEs. In those instances, loan originators may provide borrowers with GFEs that provide “clear and conspicuous” disclosures advising borrowers loan originators may issue a revised estimate at any time up until 60 calendar days prior to the closing. If the GFEs don’t include such disclosures, loan originators are prohibited from issuing a revised GFE unless otherwise provided.    

And the new Consumer Financial Protection Bureau (CFPB) is currently working on the combination RESPA/Truth in Lending form.This isn’t the end of RESPA changes. 

For more information on the requirements, visit CUNA's e-Guide to Federal Laws and Regulations.

Next: Compliance Q&A

Compliance Q&A

Are credit unions required to send nonsufficient funds (NSF) notices to members each time they overdraw a share/share draft account?

No. This common misconception was highlighted in the first “Compliance Myths” post on CUNA’s CompBlog in June. Although many institutions provide NSF or overdraft notices as a matter of common practice, providing the notice is a courtesy, not a regulatory requirement. Providing the notice may also be considered as a loss control measure, since it serves as a red flag for errors and unauthorized items. Please note that this shouldn’t be confused with the Regulation E overdraft notice credit unions must provide members to opt-in to their overdraft service for ATM and one-time debit card transactions.

For more information, visit CUNA’s e-Guide to Federal Laws and Regulations.

Visit CUNA’s CompBlog 

CUNA rolled out its compliance blog—“CompBlog”—in June. 

CompBlog takes the information credit unions have found for years in CUNA’s “Compliance Challenge” and delivers it in a more timely format.  Instead of the monthly “Challenge,” credit unions have access to virtually daily observations about regulatory developments, Q&As, and musings from CUNA’s compliance team. 

The new format also incorporates “What’s New in Compliance” so readers won’t have to monitor two different Web pages for the latest regulatory developments. 

E-mail with questions or ideas for blog posts. And keep the conversation going with your peers on COBWEB—CUNA’s compliance listserv.