CUNA Regulatory Advocacy Report

CUNA to Eleventh Circuit: Surcharging Poses Harm to Consumers, Payment System

CUNA last week filed an amicus brief in the U.S. Court of Appeals for the Eleventh Circuit, in a case raising many of the policy issues surrounding credit card interchange fees. The case, Dana’s Railroad Supply v. Bondi, involves a First Amendment challenge to Florida’s ban on merchants surcharging users of credit cards. The retailers bringing the lawsuits argue that price determination is a form of free speech, and that in banning surcharges, merchants are unable to protest interchange fees, which they deem to be too high.

“Nothing about the Florida Statute prohibits merchants from doing anything at the point-of-sale (or anywhere else) in an attempt to persuade consumers to use cash instead of a credit card,” CUNA Senior Director of Advocacy and Counsel for Special Projects Robin Cook argued in the brief. “The Florida Statute also does not preclude merchants from asking Congress or the Florida Legislature to cap the fees merchants pay for credit card acceptance. In fact, merchants have repeatedly done exactly that in recent years, and have now developed this colorful theory in an effort to accomplish part of what they could not achieve in Washington and Tallahassee.”

CUNA argues that allowing merchants to add additional surcharges to credit card transactions would allow merchants to shift the cost of these payments to consumers, while still allowing merchants to receive the substantial value of participating in the credit card system.

“Credit cards provide the consumer a safe, efficient, convenient, seamless transaction that redounds to the benefit of merchants,” CUNA stated. “Meanwhile, card issuers like credit unions assume all of the risk and guarantee the merchant will receive payment immediately. The interchange component of the merchant discount fee is how issuers are appropriately compensated for providing this service,” CUNA argued.

Credit unions face numerous costs by offering and processing credit cards. Interchange fees help ensure that card programs are economic for credit unions. A surcharge on credit card transactions, CUNA argues, could lead to consumers using credit cards less frequently, instead opting for other forms of payments. This could force credit unions to exit the credit card market, making it more difficult for them to compete with larger financial institutions to attract and retain members.

The brief also notes that consumer issues are at play with eliminating Florida’s surcharge ban. Funds generated through credit card programs are used to subsidize other consumer-friendly products at credit unions, such as free checking accounts. These programs help bring more consumers into the financial system. Surcharging could mean fewer consumers would have access to basic financial services. CUNA presents evidence showing this is exactly what happened after the Durbin Amendment.

Three other cases across the country are pending, in New York, California, and Texas, all involving similar arguments as the Florida case. The New York Credit Union Association has filed an amicus brief for the case in that state, which is under appeal. The Texas district court has ruled surcharges to be unconstitutional, and the California case is still pending.

NCUA/SBA Hold Webinar on Small Business Lending

NCUA and SBA held a joint webinar last week intended to educate credit unions on the different loan products that are available to them. While the webinar did not appear to include much new information, it did provide a comprehensive and informative overview of SBA’s loan programs, including steps credit unions must take to participate in them.

For example, SBA staff explained that to become an SBA lender, a credit union “must send a written request to the SBA field office in the area where its principal office is located. The request must include a written statement that to the best of its knowledge, the lender has satisfactory:

  1. Financial condition (e.g., capital and liquidity);
  2. Small business credit administration policies, procedures, and practices that it continues to adhere to in its operations; and
  3. Small business servicing policies, procedures, and practices that it continues to adhere to in its operations.”

The webinar focused primarily on SBA’s 7(a) loan guarantee program, which provides an 85% guarantee on loans up to $150,000 and a 75% guarantee for those over $150,000.

See NCUA’s Small Business Lending Resources Center for more information.

NCUA to Hold Field-of-Membership Webinar

NCUA announced last week that the agency will be hosting a field-of-membership (FOM) webinar later this month. Credit unions looking to expand their membership and improve service to underserved communities may be interested in attending NCUA’s free 90-minute webinar, Successful Strategies for Field-of-Membership Expansion, on March 25, at 2 PM ET. The webinar will cover:

  • Using data to maximize membership growth;
  • Using a business plan template to assist with applying for field-of-membership expansion;
  • Reviewing the Field-of-Membership Internet Application; and
  • A discussion by Newrizons Federal Credit Union regarding its FOM expansion.

Although this webinar will focus on working within NCUA’s current rules, CUNA continues to press the agency to modernize and expand FOM rules so that federal credit unions have opportunities to grow membership and serve new communities.

CUNA Comments on CFPB Proposal to Temporarily Suspend Submissions of Credit Card Agreements

Last week, CUNA submitted comments to the CFPB regarding its proposal to amend Regulation Z to temporarily suspend card issuers’ obligations to submit credit card agreements to the CFPB for a period of one year, as the agency develops an automated submission system. During the one-year period, card issuers will still need to post agreements on their own websites.

Under the current process, card issuers submit agreements to the CFPB via email. “The Bureau is working to develop a more streamlined and automated electronic submission system, which would allow issuers to upload agreements directly to the Bureau’s database. The Bureau intends for its new submission system to be less burdensome and easier for issuers to use.”

CUNA supports changes intended to reduce the compliance burden on credit unions—credit card issuers in this instance. While the CFPB is not seeking input on the new submission process it is developing, CUNA did express concern regarding implementation and ongoing costs associated with the new process that is being developed.

For those wishing to weigh-in on the proposal, the Bureau is accepting comments until March 13.

Current CUNA Regulatory Calls to Action

  • CFPB Issues Amendments to 2013 Mortgage Rules under RESPA (Reg X) and TILA (Reg Z)(comments due by March 16)
  • NCUA Seeks Input on its EGRPRA Regulatory Review (comments due by March 19)
  • CFPB Proposes Prepaid Card Rule (comments due by March 23)
  • NCUA Proposes Changes to Schedule for Capital Planning & Stress Testing (comments due by March 27)
  • CFPB Issues Proposal on Rural and Underserved Areas (comments due by March 30)
  • CFPB Proposes Safe Student Account Scorecard (comments due by March 30)
  • NCUA Issues New Risk-Based Capital Proposal (RBC2) (comments due by April 27)

For other items of interest, visit CUNA’s Regulatory Advocacy page.

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