Is Plastic Fantastic for Your Credit Union? Continued from page 21
Settlement Could Bring a $50 Million Cost for Credit Unions ment. However, the Electronic Payments Coalition (EPC) attributed that position to the trade groups’ interest in keeping its damage claims alive. EPC said in a statement that with the exception of NACS, all other class representatives through their court appointed lead counsel have “determined that this settlement is in their best interests as well as the millions of other merchants they represent.” The settlement resolves all competitive issues between merchants and the networks, EPC said. According to some press reports immediately following the settlement, some merchant groups, including the National Community Pharmacists Association and the National Grocers Association, said that they are still reviewing the court documents and assessing its impact on their members.
Other aspects of the settlement include: • Visa, MasterCard, and the banks would create a $6.05 billion fund (a record amount for a class action settlement) to repay retailers for past fees charged. • Retailers would be permitted to assess “check out” fees or surcharges on credit card purchases, which has previously
Responsibility, and Disclosure (CARD) Act of 2009 set up strict rules to crack down on card company efforts to make billions of dollars by piling on all sorts of fees and hiking rates to the limit. That, in turn, has reshaped credit cards back to primarily ratebased products, Foley said. “Credit unions are both comfortable with and good at competing on these more traditional terms.” Many credit unions with credit card portfolios reacted to the CARD Act legislation and subsequent regulatory rule-making with fear of being unable to navigate the regulatory burden. While it is true that the CARD Act created new standards for credit card and line of credit disclosures, as well as created new
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been prohibited by Visa and MasterCard rules. CUNA President/CEO Bill Cheney said that the surcharging aspect of the
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Importantly, this settlement means the issues in this case are now closed, once and for all.
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Reduced credit card interchange rate fees – mandated as a result of an historic lawsuit settlement between merchants and credit card companies – could cost credit unions with credit card programs up to a total of $50 million, according to estimates by the Credit Union National Association (CUNA). Visa, MasterCard, and several large banks, are defendants in a lawsuit brought by groups of merchants and their trade associations. On July 13, they agreed to pay billions to merchants to settle a longstanding credit card interchange fee class action lawsuit. In addition, the settlement requires a reduction in credit card interchange rate fees (IRF) of 10 basis points for an eight-month period, likely beginning in mid-2013. The rate reduction applies to all card issuers, including credit unions. If the total credit IRF reduction is $1.2 billion, credit unions with credit card programs would lose about $50 million in total revenues, or about 0.5 basis points on their total assets, CUNA Chief Economist Bill Hampel said. This loss would be concentrated among the relatively small number of credit unions that have very active credit card programs, he noted. The National Association of Convenience Stores (NACS) rejected the settle-
Bill Cheney
settlement – as well as the provision that consumer-owned credit unions would see a reduction in interchange revenue – are signs that the settlement does nothing for consumers. “We all know that interchange revenue enables credit unions to provide essential and cost-effective credit card services to their consumer members. We also know that the temporary reduction in interchange revenue that credit unions will experience will not likely find its way into the pockets of consumers, but will more likely into those of merchants,” Cheney said. However, the credit union leader added that “importantly, this settlement means the issues in this case are now closed, once and for all.”
limitations on how fees and finance charges are set, the regulatory requirements are not unmanageable. Sophisticated credit card computer processing systems are now able to create the appropriate computer parameters in order for credit unions to remain compliant with the rules while offering an attractive credit card product to their membership. Coupled with well-designed disclosures and account agreements, the regulatory burden may be lightened. “I am really bullish on credit cards,” Foley said. “The impact of the CARD Act will really give credit unions a competitive advantage to move back into credit cards.” •