Financial CHOICE Act Will Turbocharge the American Economy

Washington, June 28, 2016 – 15 national conservative organizations and prominent activists announced they “wholeheartedly endorse” the Financial CHOICE Act, saying the Republican plan to replace the failed Dodd-Frank Act will “turbocharge the American economy.”

“If we want the economy to improve — if we want to give all Americans the chance to prosper again — we need to put an end to Washington’s destructive regulatory agenda once and for all,” the conservative groups write in their endorsement letter.  “The Financial CHOICE Act aims to curb regulations to create opportunity and choice for investors, consumers, and entrepreneurs nationwide.”

The conservative organizations highlighted key features of the Financial CHOICE Act in their endorsement, noting the Republican plan will end taxpayer-funded bailouts for “too big to fail” banks, demand accountability from financial regulators, and “end the crony debit card price control scheme.”

“The Financial CHOICE Act will replace Dodd-Frank’s Orderly Liquidation Authority, which allows financial institutions to be bailed out at the taxpayers’ expense, with a newly updated subchapter of the bankruptcy code.”

“The Durbin Amendment imposed price controls and other mandates on debit card transaction fees with the false promise that billions would be passed on to consumers. Consumers have not received the promised discount. In fact, studies show that many consumers have lost access to free checking and debit card rewards as a result.”

“Housed at the Federal Reserve, the CFPB has the ability to put entire industries out of business with the snap of its fingers. Its unelected director can simply declare financial products “abusive” and outlaw them without Congressional approval. The Financial CHOICE Act will replace the single director with a bipartisan, five-member committee subject to congressional oversight and appropriations.”

“Dodd-Frank is a failure.  Democrats told us it would ‘promote financial stability,’ ‘end Too Big to Fail,’ and ‘lift the economy.’  But Dodd-Frank has done the exact opposite,” said House Financial Services Committee Chairman Jeb Hensarling (R-TX).  “The Financial CHOICE Act offers economic growth for all and bank bailouts for none.  It’s the Republican plan to reignite growth by replacing Dodd-Frank with real reforms that work.”

To read the letter, click here. (PDF download from Federal website)

To learn more about the Financial CHOICE Act, visit FinancialServices.house.gov/CHOICE.

 

Merchants Oppose Poison Pill That Undercuts Competition, Main Street and Consumers

“Without debit reform’s competition-enhancing standards, banks would be free to return to the days of unfettered price fixing.”

June 24, 2016 WASHINGTON (BUSINESS WIRE)

Yesterday, Chairman Jeb Hensarling of the House Financial Services Committee gave a speech about his commitment to helping Main Street and ending government bailouts. Unfortunately, the draft bill he released later in the day does the exact opposite.

Section 335 of chairman’s Hensarling’s discussion draft of the “CHOICE Act” favors the interests of fewer than two percent of the nation’s largest banks and the credit-card brands over the interests of small retailers, their employees and consumers in every Congressional district in the country.

This bill would turn back reforms that created a freer market and prevented Visa and MasterCard from price-fixing the fees their member banks charge merchants when customers swipe a debit card to buy something. Rep. Hensarling would turn the clock back six years to when financial institutions operated this “swipe fee” business as a rigged market without competition.

The reforms Rep. Hensarling proposes to repeal also brought competition into the debit- routing market, where previously there was none. Repealing these reforms removes requirements for networks to compete and paves the way for network monopolies, reducing our payment security while raising costs for all American consumers and retailers and harming our economy as a whole.

“Without debit reform’s competition-enhancing standards, banks would be free to return to the days of unfettered price fixing,” said Mallory Duncan, chairman of the Merchants Payments Coalition and senior vice president and general counsel at the National Retail Federation. “It’s important to remember that despite the smokescreen the big banks put up, debit reform is an incontrovertible success and should be protected.”

Join the millions of Main Street businesses in every Congressional district in calling for Chairman Hensarling to remove his poison-pill language that leaves the debit- card market without competition.

The Merchants Payments Coalition represents 2.7 million stores, including restaurants, supermarkets, drug stores, convenience stores, gas stations, on-line merchants and others, with 50 million employees, fighting unfair credit-card fees and working for a competitive and transparent system for merchants and consumers.

Contacts
Merchants Payments Coalition
Michael Flagg, 202-253-4164

NRF Says Overturning Dodd-Frank Would Reinstitute Price Fixing by Card Companies

June 7, 2016 WASHINGTON – The National Retail Federation today released the following statement after Rep. Jeb Hensarling, chairman of the House Financial Services Committee, announced plans to repeal swipe-fee reform and the Dodd-Frank Wall Street Reform Act.

“Today Jeb Hensarling announced that he wants to repeal an important competitive change in Dodd-Frank reform and return to the bad old days when card companies and banks freely picked the public’s pocket,” NRF Senior Vice President and General Counsel Mallory Duncan said.

 

“Protecting bank profit margins at the expense of competition is not sound public policy and it will harm merchants and consumers. The financial services industry attempted to get Congress to reject transparency and competition in 2010 and again in 2011. Both efforts failed. On behalf of retailers and their customers, NRF will fight for free and open markets.”

Swipe fees on debit and credit cards are many retailers’ second-largest operating cost, behind labor. These fees threaten small retailers with failure and keep merchants from hiring and expanding, slowing the entire economy. Exorbitant swipe fees also mean consumers pay higher prices. American merchants and consumers still pay the highest swipe fees in the world on debit and credit cards, according to the Federal Reserve Bank of Kansas City.

Under the Dodd-Frank Consumer Protection and Wall Street Reform Act of 2010, the Federal Reserve was required to adopt regulations that would result in debit swipe fees that were “reasonable and proportional” to the actual cost of processing a transaction. Federal Reserve staff calculated the average cost at 4 cents per transaction and proposed a cap no higher than 12 cents. Nonetheless, after heavy lobbying from banks the Federal Reserve Board of Governors eventually settled on 21 cents plus 0.05 percent of the transaction for fraud recovery and allowed another 1 cent for fraud prevention in most cases. The cap, which applies only to financial institutions with $10 billion or more in assets, took effect in 2011 and totals about 24 cents on a typical debit card transaction.

NRF is the world’s largest retail trade association, representing discount and department stores, home goods and specialty stores, Main Street merchants, grocers, wholesalers, chain restaurants and Internet retailers from the United States and more than 45 countries. Retail is the nation’s largest private sector employer, supporting one in four U.S. jobs – 42 million working Americans. Contributing $2.6 trillion to annual GDP, retail is a daily barometer for the nation’s economy. NRF’s This is Retail campaign highlights the industry’s opportunities for life-long careers, how retailers strengthen communities, and the critical role that retail plays in driving innovation. nrf.com

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NAFCU to House Small Business Committee: EMV Not a ‘Silver Bullet’ to Broader Problem of Data Security

NAFCU to House Small Business Committee: EMV Not a ‘Silver Bullet’ to Broader Problem of Data Security

Washington (Oct. 7, 2015) – State Department Federal Credit Union President and CEO Jan Roche will testify today on behalf of the National Association of Federal Credit Unions (NAFCU) before a House Small Business Committee hearing on how credit unions are protecting consumers in the payment system, the impact of the EMV transition and what steps are needed to better protect consumer financial data moving forward. Roche is telling lawmakers that EMV “is not a ‘silver bullet’ to the broader solution of data security” and is urging action from Congress to enact H.R. 2205, the “Data Security Act of 2015.”

“NAFCU urges Congress to modernize data security laws to reflect the complexity of the current environment and insist that retailers and merchants adhere to a strong federal standard in this regard,” Roche says in her prepared testimony.

Roche, whose credit union is headquartered in Alexandria, Va., is testifying before the House Small Business Committee in today’s hearing, “The EMV Deadline and What it Means for Small Businesses,” which began at 11 a.m. Eastern.

NAFCU’s Participation in Data Security and Cyber Initiatives

Roche highlights NAFCU’s involvement in various industry and government payments, data security and cyber initiatives. NAFCU is a member of the Payments Security Task Force, a diverse group of participants in the payments industry that is driving a discussion on payments system security. NAFCU is also a member of the Financial Services Sector Coordinating Council and the Financial Services Information Sharing and Analysis Center, which work on infrastructure cybersecurity.

The EMV Transition

The EMV transition deadline established by the four major U.S. credit card issuers (Mastercard, Visa, Discover and American Express) was Oct. 1 of this year. Roche says that her credit union “was an early adapter to the U.S. transition, first issuing EMV cards in June of 2012 for new cards and replacements for lost and stolen cards. Our credit card portfolio of over 28,000 cards is now 100 percent EMV.”

“It is important to note that the EMV transition in the U.S. is a voluntary one established by the market, and not a government mandate,” says Roche. Consumers remain protected in the new system as “all credit cards have zero-liability provisions for consumers, and the Electronic Funds Transfer Act limits consumer liability for any fraud on debit cards.”

A NAFCU study of its members found that a majority of credit unions are ready for the EMV transition and are issuing EMV credit cards to members as they issue new cards or replace oldmagnetic strips. “There is a greater cost for an EMV card for credit unions,” Roche says. She states that at her credit union, the cost (not including staff costs, set-up and postage) to produce a non-EMV card is approximately $3.04 and to produce a new EMV card it is approximately $5.81.

A study released by the Strawhecker Group on Sept. 17 of this year reported only 27 percent of merchants were going to meet the EMV deadline. “We believe that successful protection of the payments system requires all parties to be actively involved and hope that these businesses will work with the financial services community to recognize their role in making the payments system safer,” says Roche.

The PIN Debate

Roche discusses the debate among some that the EMV transition should have included a PIN mandate so consumers would be required to enter PINs for each transaction. “Imposing such a mandate or requirement would be unrealistic and would not be a panacea for the problem of data security,” Roche says. “It is the chip technology that makes new cards secure, not the PIN or signature.”

Roche states, “A truly secure payments system must be one that is constantly evolving to meet emerging threats and uses a wide range of dynamic authentication technologies – EMV, tokenization, encryption, biometrics and more.”

Credit Unions and Consumers Suffer from Data Breaches

A survey of NAFCU-member credit unions found that respondents were alerted to potential breaches an average of 164 times in 2014; two-thirds of respondents said they saw an increase in these alerts from 2013. In response to merchant data breaches that took place last year, 88.5 percent of credit union respondents said they notified a member; 65.4 percent issued new cards at a member’s request; and 57.5 percent placed a fraud alert on a member’s account.

“A credit union faces potential fines of up to $1 million per day for compliance violations,” says Roche. “In contrast, retailers are not covered by any federal laws or regulations that require them to protect the data and notify consumers when it is breached.”

Consumers are also the victims of data breaches. “Data security breaches are more than just an inconvenience to consumers as they wait for their plastic cards to be reissued,” says Roche. “Breaches often result in compromised card information leading to fraud losses, unnecessarily damaged credit ratings, and even identity theft.”

Credit Unions and the Gramm-Leach-Bliley Act

Credit unions and financial institutions have been subject to strict data security standards since the passage of the Gramm-Leach-Bliley Act in 1999. “Under the rules promulgated by the NCUA, every credit union must develop and maintain an information security program to protect customer data,” says Roche. “Additionally, the rules require third-party service providers that have access to credit union data take appropriate steps to protect the security and confidentiality of the information.” Roche states the “GLBA and its implementing regulations have successfully limited data breaches among credit unions.”

Preventing Future Data Breaches

NAFCU has long argued for a national data security standard for retailers and merchants similar to what credit unions already comply with under the GLBA. In addition, NAFCU has developed a number of key principles that should be considered and incorporated into the data security debate. These include:

Payment of breach costs by breached entities
National standards for safekeeping information
Data security policy disclosure
Notification of the account servicer
Disclosure of breached entity
Enforcement of prohibition on data retention
Burden of proof in data breach cases
While some have argued that voluntary industry standards should be the solution, the recently released Verizon 2015 Payment Card Industry Compliance Report found that four out of every five global companies fail to meet the widely accepted Payment Card Industry (PCI) data security standards for their payment card processing systems.

Legislative Solutions

NAFCU urges Congress to support H.R. 2205, the “Data Security Act of 2015,” introduced by Reps. Randy Neugebauer, R-Texas, and John Carney, D-Del. This bipartisan legislation “creates a national data security standard that is flexible and scalable, does not mandate static technology solutions and recognizes those who already have a working standard under the GLBA,” Roche says.

The National Association of Federal Credit Unions is the only national trade association focusing exclusively on federal issues affecting the nation’s federally insured credit unions. NAFCU membership is direct and provides credit unions with the best in federal advocacy, education and compliance assistance.www.nafcu.org.

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Merchants permitted to steer customers from American Express

The result of a federal antitrust case could change the way merchants treat acceptance of American Express. In short, merchants complained of substantially higher fees to accept American Express, but were not allowed to steer customers to lower cost card brands. A judgement was entered April 30, 2015 in favor of the plaintiff. An open ended stay of the permanent injunction pending appeal was denied.  However, the court allowed for a 30 day temporary stay of the permanent injunction on May 19, which just expired.

Excerpt from the American Express Anti-trust judgement

As reflected in § III.A of the Permanent Injunction, the court has determined that in order to implement an effective remedy in this case—in other words, “to allow Merchants to attempt to influence the General Purpose Cards that a Customer uses by providing choices and information in a competitive market”—merchants must be allowed to steer toward particular brands of debit cards, in addition to steering between brands of credit cards. (Permanent Injunction § III.A.)
The Permanent Injunction does not, however, expressly protect steering to other forms of payment, such as cash and check, although other sources of law provide such protection in certain circumstances…

Finally, the court expressly does not include brands of debit cards within the scope of
§ III.A.7 of the Permanent Injunction. Thus, while a merchant has the right under the Permanent Injunction to communicate to customers the cost of accepting American Express, or the relative costs of accepting different brands of credit cards (and the merchant may do so on an average, rather than transaction-specific, basis), American Express can prohibit merchants from including costs associated with acceptance of debit cards in this calculation, since blending the costs of accepting credit cards and debit cards would likely overstate the difference between the merchant’s overall cost of accepting American Express and its cost of accepting other brands, such as Visa and MasterCard, that have both credit and debit cards.

Keys for merchants who want to adopt steering

  • Merchants can offer discounts or rebates to customers
  • Merchants can display signs stating ‘preferred’ card brand
  • Merchants cannot blend debit and credit rates to communicate cost of acceptance differences
  • Other laws are applicable, including the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. “Retailers can encourage their customers to use other forms of payment, such as cash and checks, and can discount for PIN debit, cash and checks.”

Merchant Card Brand Steering Challenges

Under the Durbin amendment, customer receipts must include a subtotal, discount amount, and final total. Merchants need a software or cloud based solution that can make the calculations and output the correct receipt.

If offering discounts for steering, removing decision making and calculations from cashiers is critical for both compliance and cash management.

CenPOS Steering Solutions

CenPOS is a merchant centric, cloud based payment engine with fully compliant steering technology, including the ability to identify which cards qualify for discounts, and automatically calculating the discount.

  • Analyze transaction data by user/department, day of week, and hour of day, to determine if and when steering is cost effective.
  • Offer steering discounts only when and where it’s financially beneficial instead of 24/7 in all locations.

 

REFERENCES

United States of America, State of Arizona,    State of Connecticut,    State of Idaho,    State of Illinois,    State of Iowa,    State of Maryland,    State of Michigan,    State of Missouri, State of Montana,    State of Nebraska,    State of New Hampshire,    State of Ohio, State of Rhode Island,    State of Tennessee,    State of Texas,    State of Utah, and    State of Vermont
v.
American Express Company, American Express Travel Related Services Company, Inc., MasterCard International Inc., and Visa Inc.
http://www.justice.gov/atr/cases/americanexpress.html

* http://www.justice.gov/atr/cases/f313600/313609.pdf

http://www.marketwatch.com/story/amex-to-stop-merchant-curbs-2015-06-18-231034750

http://www.forbes.com/sites/maggiemcgrath/2015/02/19/antitrust-lawsuit-loss-puts-amex-among-the-dows-worst-performers/