Credit Unions Score Major Victory

March 24, 2014 at 8:44 am Leave a comment

Credit unions scored a major victory on Friday when a federal appeals court in Washington reversed the decision of a district court and upheld regulations promulgated by the Federal Reserve Board to implement the dreaded Durbin Amendment.  The victory means that debit card issuing credit unions don’t have to spend this morning shopping around for additional payment networks.  It also means that you don’t have to worry about even lower debit interchange fees for larger institutions indirectly impacting your bottom line.

As many of you no doubt recall, the Durbin Amendment has two major components.  First, it calls on the Federal Reserve Board to limit debit interchange fees that could be collected by institutions with $10 billion or more in assets to an amount that is proportional to the cost incurred by the issuer with respect to a transaction.  It also prohibited limiting the number of payment card networks on which debit cards can be processed to one network.  The Federal Reserve interpreted these statutory mandates with regulations mandating that card issuers offer at least one PIN-network and one unaffiliated signature debit card network.  The Board also capped debit interchange fees for larger institutions at approximately $0.24 per transaction.

In a somewhat amusing twist of fate, many of our merchant friends ended up losing money as a result of the new regulations.  They went to court and in one of the most sarcastic decisions you are ever going to read, a federal district court in Washington concluded that the Federal Reserve misread the clear intention of the statute and ordered the Federal Reserve to go back to the drawing board and devise a debit card cap which included a narrower definition of transaction costs.  In addition, the judge ordered issuers to provide merchants with two networks for PIN-based debit transactions and two networks for signature-based debit transactions. 

I’ll spare you the gory details of the Appellate Court’s analysis, which hinged, among other things, on the difference between “which” and “that,” but the bottom line is that whereas the District Court saw the Durbin Amendment as a clearly drafted legislative mandate, the Appellate Court saw that it was a poorly drafted 11th hour amendment to Dodd-Frank.  As a result, the Fed was justified in interpreting the statute more liberally than the merchants would have liked.

NCUA Board Meeting

I didn’t get to blog as often as I normally do last week, but since we’re on the topic of Legislative interpretation, I want to make one comment about last week’s NCUA monthly board meeting.  At the meeting, the Board proposed joint regulations establishing a framework for the regulation of appraisal management companies.  This joint regulation is mandated by Dodd-Frank. 

Appraisal management companies are those that serve as intermediaries for appraisers and lenders.  Interestingly, while the NCUA issued the proposal, Chairman Matz complained that NCUA is “unable to enforce it,”  According to the Chairman, “NCUA remains the only financial services regulator lacking the necessary authority to examine vendors for safety and soundness in compliance with laws and regulations.” 

This is an important admission on the part of NCUA since many of us have been criticizing it for seeking to exercise oversight over third party vendors without jurisdiction.

American Hustle

As those of you with young children no doubt appreciate, with babysitters more costly than loan sharks and a night at the movies requiring a home equity loan, this is a key time of year for my wife and I as the Oscar nominees hit the pay-per-view circuit.  On Saturday night, we watched American Hustle and all I have to say is Twelve Years a Slave better be a pretty good movie because American Hustle is one of the best movies I’ve seen in years.  In fact, it is the best movie of its genre since The Sting starring Robert Redford and Paul Newman. 

On that note, have a pleasant day.

Entry filed under: Advocacy, Compliance, Legal Watch, Regulatory. Tags: , , , .

Just How Much Is Compliance Costing Your Credit Union? Are you making a subprime loan?

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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