Posts tagged ‘MasterCard’

The Cryptocurrency Train is Leaving the Station, Will Credit Unions be Onboard?

Good morning, folks.  The American Banker reports this morning that VISA is nudging banks and credit unions to expand their cryptocurrency options for members using their network. 

Visa on Wednesday launched a crypto advisory service that’s designed to help the company’s banks and credit unions further their cryptocurrency strategies.” 

If this blog sounds somewhat redundant, it’s because I blogged recently about a similar announcement by MasterCard. 

There are two key components involved in this trend that the industry has to more aggressively deal with than it has to date.  First, it is important to underscore precisely why VISA and MasterCard are going to get increasingly aggressive in coaxing the industry into the cryptocurrency space. 

At its core, cryptocurrency is about using technology to facilitate efficient black and white financial transactions without a middle man.  In other words, the increasing use of cryptocurrencies is a direct threat to the VISA and MasterCard business model.  The sooner they integrate themselves into the cyber network by ensuring that members can conveniently access cyber currencies through their networks, the less likely members are to go through the hassle of setting up their own digital wallets. 

Secondly, yours truly remains more than a little concerned about how methodically the NCUA is going about providing guidance for credit unions engaging with this space.  For example, this fall it requested credit union feedback on issues related to cryptocurrencies and I am hoping this means that we can expect additional guidance next year.  In contrast, the OCC has written three interpretive letters to banking institutions providing guidance on various aspects of cryptocurrency banking.  Most importantly, it recently issued a letter summarizing the guidance and explaining that while banks can go forward in this area, they should do so only after informing their regulators of their intentions.

If anything, cryptocurrency issues will probably be even more challenging for credit unions because of Field of Membership concerns and the asset size of many of our credit unions.  Still, for better or worse, and I believe mainly for worse, all the cool kids are doing it and it’s time to get the regulatory framework in place.

December 9, 2021 at 9:08 am Leave a comment

Is the Credit Union Industry Ready For Cryptocurrency?

The history of financial regulation in the country over the last 100 years can largely be viewed as a battle over how best to regulate and create a stable currency – a debate that culminated in the creation of the federal reserve system, and how best to balance the innovations of investment banking with the need to protect average consumers – which culminated in the passage and subsequent gutting of the Glass-Steagall Act.  What makes the emergence of cryptocurrency so fascinating and important to understand is that it challenges both of these areas in fundamental ways. 

For example, Bitcoin was started with the stated purpose of creating a new form of exchange in which individuals didn’t have to worry about those nettlesome financial intermediaries.  Those of us who thought this would be a passing fad of techno-libertarians gone crazy are increasingly being proven wrong.  Just a few weeks ago, MasterCard announced that it would offer debit and credit cards in which members could use selected cryptocurrencies to pay for everyday items.  In short, you’re seeing a system beginning to develop that is challenging traditional notions of currency.  The problem is that even as some cryptocurrencies are being presented as electronic versions of traditional currencies, even the most stable types on offer continue to fluctuate wildly in value and are more akin to traditional securities than cash. 

SEC Chairman Gensler summed up the situation nicely when he described the current climate as the Wild West and promised that the SEC would move aggressively to clamp down on excesses.  The problem is, regulators are pretending that they have time to thoughtfully consider how best to regulate this phenomenon.  They don’t.  In a recent report issued by a group of financial regulators including the NCUA, Congress was urged to update existing banking laws to begin addressing the unique issues posed by stable coins, which are a type of cryptocurrency tied to traditional collateral.  While any movement in this area is welcome, the fact that the report was issued within days of MasterCard’s announcement underscores just how behind the game regulators are.  It’s as if dads were to warn kids against getting into the liquor cabinet five days after the prom. 

Why should credit unions care?  Because history also tells us that smaller financial institutions are often the ones that benefit the least from financial innovation and get hurt the most from its excesses.  Most importantly, we need clear rules of the road related to the ability of financial institutions to accept cryptocurrencies as both collateral and cash.  We also need to make sure that appropriate collateral requirements are put in place and that a national licensing framework can be used to quickly step in against bad actors.  In short, we need a whole new paradigm of financial regulation, and time is not on our side. 

November 15, 2021 at 8:47 am 1 comment

For Visa, MasterCard and Merchants, It’s Deja Vu All Over Again

Image result for deja vu all over againIt took me a lot longer than I expected to research today’s blog because when I read the news this morning that Visa and MasterCard had again reached a settlement of their decade old anti-trust legal dispute with the merchants., I had to refresh my aging hard drive of a memory about just how we got here.

For example, if you’re like me you remember what a big deal it was when, in 2013, a settlement was reached under which $7.25 billion was to be handed over to the merchants and other financial institutions had to surrender a portion of their credit card fee income to merchants. Remember, this was the price we had to pay for peace in our times. It didn’t last very long.

The settlement was stillborn. Some of the largest retailers objected to the deal and eventually the Court of Appeals for the 2nd Circuit agreed (In re Payment Card Interchange Fee & Merch. Disc. Antitrust Litig., 827 F.3d 223, 236 (2d Cir. 2016), concluding that a significant proportion of merchants were either legally or commercially unable to obtain the benefits extensively negotiated on their behalf.

As the settlement terms become available it will be interesting to see what additional concessions merchants were able to obtain as part of the new settlement.

Teachers Discusses Melrose Deal

Yours truly is not in the best position to know who got the better end of the deal when Teachers Federal Credit Union on Long Island recently finalized a deal to absorb much of Melrose Credit Union but the next time I’m buying a house I want Teachers FCU to do my negotiating.

As CEO Bob Allen explained in the Credit Union Times, NCUA is keeping all of Melrose’s medallion loans, meaning that in return for taking on the remainder of Melrose’s assets, the $6 billion credit union has obtained the last of New York State’s open charters. This charter permits the credit union to operate anywhere it wants without regard to field of membership restrictions.

What remains to be seen is how great an impact medallion loans will have when they are absorbed into the Share Insurance Fund. As the article notes, “no one really knows whether the value of medallions has bottomed out and betting on their value would have put the credit union in too much risk.”

 

September 18, 2018 at 9:16 am 2 comments

Why July 22nd Matters To You

If your credit union is a card issuer, mark your calendars.  July 22nd is a day to remember.

Responding to merchant complaints about the length of time it is taking to get their EMV compliant Point- of-Sale terminals certified, Visa announced in June that it is limiting chargebacks that issuers can impose on merchants. Amex has also announced similar changes as has MasterCard.  Here is a technical  breakdown of the specifics.

Remember that, effective October 2015, liability for counterfeit card transactions shifted from always being the responsibility of the issuing bank or credit union to merchants whose POS terminals could not process EMV chip enabled transaction.

Even though this liability shift was announced in 2011,  a last second rush by merchants has created a bottleneck.  One of the main problems is that the terminals must be certified as  EMV compliant and this process is taking longer  than anyone anticipated.  Starting July 22nd and lasting until April 2018 Visa will block all U.S. counterfeit fraud chargebacks under $25. In addition, effective October 2016, issuers will also be limited to” charging back 10 fraudulent counterfeit transactions per account, and will assume liability for all fraudulent transactions on the account thereafter.” Visa estimates that these changes  will result in  40 percent fewer counterfeit chargebacks, and a 15 percent reduction in U.S. counterfeit fraud dollars being charged back.

Merchants have been complaining about the volume of chargebacks since the change took effect. They even sued Visa and MasterCard to block chargebacks based, in part, on complaints about the certification process.

July 5, 2016 at 9:35 am Leave a comment

Anti-Trust Settlement Thrown Out

 

For those of us in the financial industry, three things are certain: Death, taxes and merchant antitrust litigation.

Yesterday, the Court of Appeals for the Second Circuit threw out  the $7.5 billion 2012 settlement between merchants and Visa and MasterCard intended to put an end to a decade of antitrust litigation and brihttps://fred.stlouisfed.orgng about peace in our time.  Considering how long it dragged on and that the settlement was the largest antitrust payout in history, perhaps it is only fitting that the decision came down the day before the 100th Anniversary of the Battle of the Somme, the bloodiest battle in World War I that resulted in over a million deaths and casualties.

What happens now? The case goes back to the trial court and merchants are likely to push for even more money and a narrower ban on future litigation.  The National Association of Convenience Stores  cheered the court’s decision to scuttle the settlement because “the relief it offered was inadequate and the release [from future litigation] was overbroad.”  The National Retail Federation predicted that the Card firms could face even more pressure from retailers to change their fee structures.

Among the defects cited by the court was that there were too many competing merchant interests represented by the same attorneys. The court explained that “Unitary representation of separate classes that claim distinct, competing, and conflicting relief create unacceptable incentives for counsel to trade benefits to one class for benefits to the other in order somehow to reach a settlement.”  The court was also concerned that the settlement barred all future claims against Visa and MasterCard but only placed temporary restrictions on the card companies.

The merchants were divided into two classes: one class consisting of merchants that accepted Visa and/or MasterCard from January 1, 2004 to November 28, 2012, which was eligible to receive part of the $7.25 billion; the other consisting of merchants who joined the networks after that late, who were only entitled to injunctive relief in the form of changes to Visa’s and MasterCard’s network rules. For example, Visa and MasterCard agreed to change their network rule to allow merchants to surcharge credit card purchases.  But the court noted that in States such as New York surcharge bans are still illegal under state law.

Brexit Fallout

fredgraph

 

This chart highlights what’s happened to the yield on 10-year Treasuries in the aftermath of the decision of Great Britain to leave the Eurozone.(Tap it for a better view).  Needless to say, with yields tumbling, it’s hard to see why the Feds would want to raise interest rates any time soon.

On the bright side, this continues to be the Golden Age to buy a home, assuming you can qualify for a mortgage.

By the way, I made this chart after visiting the Fred Website, a phenomenal resource of which all you number junkies out there should be aware.  On that note, have a nice Fourth!

July 1, 2016 at 9:02 am Leave a comment

Home Depot’s Sideshow Bob Moment

In the lead-up to the liability shift for merchants that can’t process EMV chip card transactions, we heard a lot from merchants about the costly burden of upgrading equipment.  Now that the deadline has passed, we are hearing a lot of merchants say they love EMV, they just hate the fact that Visa and MasterCard transaction standards mandate that chip transactions be completed with a member’s signature and not a PIN.  Interchange fees transacted over PIN networks are cheaper than interchange fees executed over signature networks.

The latest front in this stage of the battle was opened earlier this week when Home Depot filed a lawsuit in Federal District Court in Atlanta claiming that Visa and MasterCard have colluded for years to deny access to chip and pin networks, which Home Depot argues would be safer for consumers and cheaper for merchants (THE HOME DEPOT, INC. and HOME DEPOT U.S.A., INC., v. VISA INC., VISA U.S.A. INC. et al 1:16-cv-01947).  By the way, this is the same Home Depot being sued for costs related to a data breach.     It reminds me of this classic scene from the Simpsons in which Sideshow Bob gets released from prison and runs for office claiming that Mayor Quimby is soft on crime.

According to the plaintiffs:  “Visa and MasterCard have acted to keep a defective product in place — signature-authenticated cards — in order to maintain their supra-competitive profits that are tethered to this faulty technology.  Visa’s and MasterCard’s success in forcing merchants and consumers to accept and use technologically-inferior, and in fact defective, products — including products that Visa and MasterCard knew would increase fraud — is further evidence of their substantial market power.”

Another criticism of the network rules is that they require merchants “to honor the cards of all card issuers.” This is, of course, is a great example of why lawsuits like this are so dangerous for smaller institutions.  Imagine a world in which the Home Depots and Walmarts could enter into exclusive deals with banks of their choosing? That doesn’t sound all that consumer friendly to our members.

See you in Saratoga!

 

June 16, 2016 at 7:16 am 1 comment

Moving the Onus of Data Breaches

I’m feeling lucky today. On the same day that New York credit unions are going to the Legislature to advocate for stronger data protections, among other things, news reports explain why small credit unions and banks are objecting to a proposed settlement between MasterCard and Target in relation to Target’s data breach.

To his credit, the Attorney General has made data breach legislation one of his main priorities. Recently, the Legislature introduced bills at his request (A.6866/S.4887) that would require all businesses in New York State to adhere to certain basic industry standards. For example, businesses that comply with Gramm-Leach-Bliley privacy protections would be in compliance with the AG’s standards. Since banks and credit unions have had to meet basic privacy protections for years, the main effect of the AG’s proposal would be to apply these standards to merchants. This is, of course, a good thing. But what happens when the merchants don’t live up to their end of the bargain?

Which brings us to today’s news. As explained in this article in the Wall Street Journal, small banks and credit unions are objecting to the proposed MasterCard settlement negotiated with larger banks on the grounds that it doesn’t provide adequate redress to smaller institutions. You may be aware that credit unions have joined class action law suits seeking damages against Target and other retailers for costs related to the breach. One of the main reasons why the Target lawsuit has legs is because Target is headquartered in Minnesota. In addition to being the land of 1000 lakes, it is also one of the first states in the nation to have a statute enabling financial institutions to recover for the cost of data breaches caused by merchants. These costs include the expense of reissuing new debit and credit cards.

The AG’s bill includes no similar rights for New York banks and credit unions. If the legislation ultimately includes such a right, it would be a pretty fair deal for financial institutions and consumers. Data would be better protected and the fear of litigation would put some teeth behind this bill. In contrast, unless credit unions and banks get a statutory right to recover for the costs of breaches for which they are not responsible, costs of these data breaches will not be shouldered by the parties most responsible. This is particularly important for credit unions since, as the article points out, data breaches are more costly for smaller institutions.

April 29, 2015 at 7:52 am Leave a comment

Surcharge Away! Judge Invalidates Surcharge Ban.

I have two thoughts this morning.  First, however much the merchants are paying their lawyers, it’s worth it, and my General Tsao’s Chicken just got more expensive.

On Friday, a federal district court in Manhattan struck down New York’s law prohibiting retailers from charging surcharges on credit card purchases (see Expressions Hair Design et al v. Schneiderman, No. 13 Civ. 3775 (JSR), Oct. 3, 2013).  New York is one of ten states that restrict such charges.  Prior to last year, the statute wasn’t all that important because surcharge bans were included in the standard merchant contract between merchants and VISA and MasterCard.  Following last year’s anti-trust settlement under which Visa and MasterCard agreed to do away with this provision, a group of retailers brought a suit claiming, among other things, that the statute violated the first amendment.

The offending statute, which has been in place since 1984, provides as follows:  “No  seller in any sales  transaction may impose a surcharge on a  holder  who  elects  to  use  a  credit card in lieu of payment by cash, check, or similar means.  Any seller who violates the provisions of this section shall be guilty  of a misdemeanor punishable by a fine not to exceed five hundred dollars or a term of imprisonment up to one year, or both.” – See NYS General Business Law, section 518.

According to the judge, this statute is unconstitutional and vague and keeps retailers from explaining to consumers the true costs related to a transaction.  For example, the existing law already permits retailers to offer discounts for individuals who pay in cash.  This is why gas station owners consistently offer lower prices for people who pay in currency as opposed to a charge card.  The crux of what the judge contends is wrong with what he describes as an “Alice in Wonderland” piece of legislation is that a gasoline station owner careful or sophisticated enough to always characterize the lower prices as a discount for cash is not violating any provision of the law; but if a colleague down the street described the higher price as a credit card surcharge, he has violated the law.

To the Judge, the distinction between a surcharge and a discount comes down to semantics.   Very respectfully speaking, in my ever so humble opinion, semantics matter.  As explained by the Oxford American Dictionary, a surcharge is “an additional charge or payment from:  retailers will be able to surcharge credit-card users.”  Let’s be honest, the language clearly does matter as merchants have been trying for more than 3 1/2 decades now to remove bans on surcharges, first on the federal level and now on the state level.  If the New York State Legislature wants to deter discrimination against credit card users by prohibiting the use of credit card surcharges, it is free to do so and the language is well understood.  The fact that from an economic standpoint there is little practical distinction between a discount and a surcharge is irrelevant to the statute’s legality.

I hope this is one the AG is going to appeal.  As for my General Tsao’s chicken, when my blog, like this one, takes a little too long to write and I go out for lunch instead of relying on leftovers, I go to a Mom and Pop Chinese place down the street run by a nice couple that for years has deterred me from using my credit card by charging two dollars every time I use a card to pay.  I doubt they knew they were violating the law, but now that a federal judge has told them that their free speech rights were being violated by not being able to gauge me, they can breathe a little easier.

Here is my government shut-down quote of the day from Long Island House Representative Peter King:

“I don’t consider these guys conservatives. I think the party is going in an  isolationist trend. It’s appealing to the lowest common denominator in many  ways. And this whole threat of defunding the government, to me, is not  conservative at all,” said King, who added later: “Maybe we do live in different  worlds. These guys from the Ted Cruz wing live in their own echo chamber.”

Read more: http://www.politico.com/story/2013/10/peter-king-vs-ted-cruz-wing-97899.html#ixzz2h2RVhYZt

 

October 7, 2013 at 8:35 am Leave a comment

Merchants Win, Consumers Lose, So It Goes

Late Friday, merchants and Visa and MasterCard filed a proposed settlement agreement of the anti-trust litigation started in 2005.  The $6 billion payout is reportedly the largest anti-trust settlement in history.  Once people take a look at what’s actually being agreed to, they will realize that the settlement is actually a cease fire, with the only definite losers being the American consumer.

The core of the agreement is a provision to allow merchants to impose a surcharge on products purchased with credit cards.  They cannot discriminate against issuers and they must give consumers notice that fees will be imposed.  Consumers will start seeing notices as early as the end of this year or, more likely, the beginning of 2013.  The surcharge itself will be capped at an amount “no less than the product of 1.8 times the sum of the system-wide average effective U.S. domestic Visa Credit Card interchange rate plus average network fees (defined to include network set fees to acquirers or merchants associated with the processing of a transaction or with the acceptance of the network’s brand).”  To facilitate compliance, much of this information will be available on VISA and MasterCard websites.  Interestingly, the agreement does next to nothing about interchange fees. 

So, why is this basically a cease fire as opposed to a final settlement?  Because merchants hope that by plainly pointing out to consumers that they are paying more because of evil credit card issuers, consumers will either switch to using debit cards or cash.  VISA and MasterCard are gambling that the surcharge will make consumers realize that it is merchants who are imposing an additional cost to recover part of their overhead, and will even start frequenting those merchants that choose not to impose surcharges. 

In practice, the only thing I can tell you for sure is that in a country struggling to reboot its economy, we are now going to make every purchase more expensive for consumers.  If, as common sense would tell you, the cost of interchange fees has already been accounted for in the cost of a credit card purchase, then this agreement will theoretically allow merchants to reduce the price of products to offset the cost of the surcharge to their customers.  Somehow, I doubt this will happen. 

So the surcharge will accomplish nothing other than a windfall for merchants and more expensive products for consumers. 

 

July 16, 2012 at 7:00 am Leave a comment

Lawsuit Threatens Credit Card Practices

As if we don’t have enough to worry about, the Wall Street Journal is reporting this morning that in settlement talks with merchants aimed at avoiding an antitrust suit scheduled to go to trial in September, VISA and MasterCard may agree to allow merchants to impose a surcharge on consumers who have the audacity to use credit cards when buying a product in their stores.  As I pointed out in a previous blog in January, VISA and MasterCard are facing a massive antitrust lawsuit that has the potential of reshaping credit card interchange fee practices. 

The article highlights merchants who complain that credit card interchange fees constitute a third of their overhead.  While I find that statistic incredibly hard to believe, assuming it’s true, why don’t they also sue any wholesaler who provides them products at a price they don’t like?  Of course, when it comes to any other product, the answer would be to simply not offer it to consumers.  But for some reason, the free market doesn’t count when it comes to debit and now, apparently, credit cards.  The merchant lobbyists have done a wonderful job of framing this issue as one that pits Mom and Pop against evil card-issuing financial institutions, but in truth, any settlement in this area disproportionately benefits WalMart, Target and other major retailers.  The idea that they don’t have leverage to negotiate better fees without the interference of the courts or government is, of course, ridiculous.  But so it goes.

Incidently, if there is ultimately a settlement, I would love to see merchants pledge that they will pass on any savings in “overhead” to their consumers.  I won’t hold my breath.

July 12, 2012 at 7:19 am 1 comment


Authored By:

Henry Meier, Esq., Senior Vice President, 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. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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