Posts tagged ‘VISA’

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

Are You In Compliance With The Durbin Amendment?

For an industry of debit card issuers the Durbin amendment is like a bad back; you can learn to live with it but there is always enough chronic pain to remind you that there is something a little off. So it is that once again the Amendment is back in the news and once again large debit card issuers and Visa are in the crosshairs of merchants and the Department of Justice: Here is why.

The Durbin amendment had two major components: First, it capped the interchange fees that financial institutions with $10B or more in assets could charge the merchants; secondly it required that all debit card issuers give merchants the ability to process payments through two unaffiliated networks (e.g. Visa and NYCE).  

The problem is that the system was designed in the ancient times of a decade ago when only futurists were talking about online shopping doing away with retail.  PIN based authentication to trigger Point-Of-Sale transactions has long been an industry standard.  However, PIN based authorization is of course not an option for the wine sipping, sweatpants wearing consumer buying toiletries online on a Friday night.  Networks such as NYCE can now process such transactions but critics argue that large issuers and the Visa networks have been slow to turn on these updated systems.  As explained in this blog “…there is a fundamental issue with Bank Identification Number (BIN) enablement, preventing the growth of PINless. In a nutshell, many issuers are not switching on PINless functionality when they issue bank cards, which means merchants are unable to use it for a large proportion of transactions. In our experience, a merchant is unlikely to be able to use PINless more than 50% of the time.”

Not surprisingly, this complaint has gotten the attention of Senator Durbin and Congressman Welch  who wrote this letter to the Federal Reserve urging it to take a look at whether large issuers and Visa are violating Durbin.

Of course, the Durbin amendment is only relevant to the extent that a transaction involves a debit card.  There are now FinTechs that specialize in scraping up a consumer’s financial information—with their permission— and allowing them to quickly provide this information to a wide range of businesses such as financial planners.  One of the leading companies in this area is Plaid.  Plaid has an ingenious business model in which it will allow consumers to replace debit card transactions with ACH payments.  It has a growing network of merchants who are willing to accept the occasional ACH transaction from individual consumers.  Suffice it to say, ACH transactions are a lot cheaper for merchants than are interchange fees.  Visa decided it was worth buying Plaid for $5B.  DOJ moved to block the deal and with the case on the verge of going to trial last summer, Visa and Plaid decided it was best to leave each other at the altar. 

The scrutiny is increasing.  The WSJ was one of several papers reporting on Friday that Visa is being investigated over its debit card practices.  With Senate democrats in control of hearing agendas, brace yourself for another round of payment processing investigations as merchants once again claim to be victimized by the debit card processing system.   Cue the violins.

March 22, 2021 at 10:00 am Leave a 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

What Visa’s “War On Cash” Says About the Future of Your Credit Union

In one of the savviest PR moves I’ve seen in quite some time, with a simple press release Visa has gotten the mainstream press talking about the utility of cash,  particularly for small service businesses.

No one thinks that the wallet is destined to join the Smithsonian anytime soon, but by offering grants to small businesses that agree to stop accepting cash Visa has highlighted one of the  key trends that is reshaping banking.

Cash will not always be King. After all, Cash evolved over thousands of years to  provide a means for merchants,  pilgrims  and crusaders to buy and sell goods far from home without getting stiffed at the checkout counter.  It’s had a nice run.

Today, currency moves around the world in seconds and block chain technology has the potential to eliminate any confusion over who owes whom what and when.

Consumers get this. In its 2016 Payments Study report the Fed estimates that 117.5 billion consumer payments were made using noncash methods in  2015 compared with only 50.7 billion in 2000. It points out  that “the substantial increase in the number of consumer noncash payments suggests that, not only were consumer payment choices shifting away from checks for both purchases and bill payments, but there also likely was significant replacement of consumer cash payments as well.”

As this trend accelerates how you process payments is going to become almost as important as the loans and rates you offer. This is why Vanitu  has made a $10 billion bid to buy British payments processor Wordplay Group and why JP Morgan Chase is reportedly considering a  counteroffer.   And it’s why the American Banker is reporting  this morning that Bank of New York Mellon’s decision  to hire Charles W. Scharf, who sits on Microsoft’s Board of Directors, as its new CEO, signals the Board’s recognition  that  to survive long-term, it “will have to look more and more like a payments Mellon.”

July 18, 2017 at 9:07 am Leave a comment

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

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

Merchants Seek To Restart Interchange Litigation

Like a bad horror movie where the Villain seemingly reaches from beyond the grave-I’m thinking Glen Close in Fatal Attraction-the antitrust  litigation between merchants and Visa and Master Card could be coming back to life. Merchants have filed a motion in federal district court in New York seeking   to vacate the $7 billion settlement that was reached between merchants and the card payment networks in 2012 that was supposed to put an end to litigation claiming that interchange fees violated the law.

A motion  by the merchants alleges that Gary Friedman, an attorney who represented merchants in a suit against American Express at the same time the Visa/ MasterCard litigation was taking place, passed on confidential information without authorization to an attorney and friend who was representing Visa and MasterCard.  The motion contends that by “illegally” passing on this information Friedman was “helping the enemy.” In doing so merchants claim they were denied adequate representation, they argue that the attorney’s conduct amounts to a conflict of interest that necessitates vacating the settlement. They are also seeking to keep him from collecting the $32 million he earned representing them.   Attorneys representing Visa and MasterCard have until August 18th to respond to the motion.

This allegation is serious.  Clients are entitled to the undivided loyalty of their attorney and if that right is denied them it can lead to lawsuits being reopened.

This litigation has been dragging on since 2005. In addition to the record settlement, Visa and MasterCard agreed to changes to their merchant agreements, For example  merchant contracts no longer prohibit merchants charging more for credit card transactions. According to court records the lawsuit has resulted in a mere 400 depositions and the production of 80 million documents.

Is The CFPB unconstitutional?

Since we are talking about lawsuits  I feel like mentioning one of my favorites. In 2012  State National Bank of Texas challenged the constitutionality of the Dodd Frank Act.   With the backing of several State AGs it argued, among other things, that (1) Dodd-Frank gave the CFPB powers that only Congress   could exercise and (2) that it was unconstitutional to vest all of the Bureau’s powers in a single director.

The suit has always been a longshot and no one was all that surprised when it was dismissed  in  August of 2013 on the grounds that the  bank lacked standing to sue the CFPB.   Last week  the Court of Appeals for  DC  caught more than a few court watchers  by surprise;  The Court held that the bank could bring its lawsuit because it was regulated by the CFPB and impacted by its regulations. State Nat. Bank of Big Spring v. Lew, No. 13-5247, 2015 WL 4489885 (D.C. Cir. July 24, 2015).

As an unabashed constitutional dinosaur when it comes to the ever-expanding powers of regulators, I have a real soft spot for this lawsuit even if it  is the longest of long shots. I’m not saying that the CFPB is going away but what I am saying is that,  since the  1930’s-like I said I’m a dinosaur-Congress has gotten too used to delegating too much power to  agencies. These agencies are ostensibly constrained by Congress, but as  Dodd Frank demonstrates,  so much legislation is so broadly written there are few actual constraints on regulators. By letting this case go forward the courts can begin  reexamining what limits, if any, the constitution places on Congress to delegate de facto legislative power to unelected regulators.

July 28, 2015 at 9:33 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:


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

Buyer’s Remorse?

There’s a saying in politics that if everyone is disappointed with a piece of legislation it must be a good compromise.  I’ve always thought that this was just an excuse for some really bad bills, but if it’s true, than the settlement agreement reached between VISA and MasterCard and the merchants is really good. By Monday morning, one merchant group, the National Association of Convenience Stores which represents the convenience and fuel retailing industry, had already hired its own prominent anti-trust lawyer and voiced displeasure with the agreement.  As they explained:

 “VISA and MasterCard will continue to separately price-fix fees for thousands of their bank members.  This means that banks won’t have to set their own prices and compete like other business throughout the US economy and VISA and MasterCard can continue to police how merchants price their products….” Translated into straight talk, this means that merchants are upset that they will continue to have to pay interchange fees if they choose to offer credit card services. 

Meanwhile, CUNA estimates that the ten basis point reduction in interchange fees over an eight-month period called for in the agreement, will cost credit unions approximately $50 million.  Apparently, the merchants don’t think this goes far enough even though the temporary cap comes in addition to a payout in excess of  $6 billion. 

 I’m sure that as the implications of this settlement agreement are laid out in the coming days, we’ll find even more for everyone to be unhappy about.  The merchants, after all, won’t be completely happy unless they get a debit card-style cap on interchange fees. Isn’t it strange that anti-trust law has become so distorted that, even though it was created to ensure a proper functioning free market, it is now being used to authorize artificial price increases and subsidize merchants who choose to allow their customers to use  credit cards?

Whose side is Nationwide on?

 Nationwide Insurance is not on New York’s side – at least when it comes to hydrofracking. 

 As reported by the Albany Times Union the company released a statement late last Thursday  indicating that it would not offer any insurance project related to a mortgage which is being leased for natural gas drilling.  In a statement it said that none  of its personal or commercial insurance policies were “designed to provide coverage for any fracking-related risks. … We do not have a comfort level with the unique risks associated with the fracking process to provide coverage at a reasonable price.”  Nationwide’s statement continued, “Risks like flooding and mining or drilling are not part of our contracts, and the customer should seek out an insurer that handles these customized types of insurance.”

It is not clear that  Nationwide’s s decision should have a direct  impact on the mortgage industry But its statement could be important if it convinces other companies to follow its example.  New York could publicize regulations some time this year authorizing the use of  hydro fracking for natural gas.

July 17, 2012 at 7:05 am 1 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

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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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