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Senate passes financial regulatory reform bill

The U.S. Senate, Thursday, passed the financial regulatory reform bill despite the concerns of credit unions. The bill now is on its way to President Obama to sign into law.

The interchange provision directs the Fed to study interchange fees charged by the nation’s biggest card issuers, those with more than $10 billion in assets, and order the fees to be reduced if found to be unfair. All but three credit unions are exempt from this provision however those exempt will feel the impact because they will be forced to reduce their credit union's interchange fees in order to compete with the big banks that have been ordered to lower their fees. The Senate passed the legislation on a 60-39 vote. The LSCU had three Senators, Lemieux, Shelby and Sessions vote against it while Sen. Nelson voted in favor.

CUNA President Bill Cheney commented, the bill “would have been well-balanced, but for the interchange provision it also incorporates. Because of this provision’s impact on credit unions, and its inclusion in the bill, CUNA had no choice but to oppose the overall legislation.”

Since it has passed, Cheney stated that "credit unions will be working with regulators to ease the interchange provision’s impact on their operations and members."Although interchange was a difficult battle to lose, the final bill has positive aspects due to the engagement of CUNA and state leagues. The final version:

  • preserves the CU charter and the independence of NCUA;
  • does not contain a "plain vanilla" product requirement or CRA authority for the new consumer protection bureau;
  • provides parity with banks on permanent $250,000 deposit insurance coverage;
  • includes the NCUA chairman on the Financial Stability Oversight Council; and
  • includes a $10 billion asset threshold for being examined by CFPB, raised from the $1.5 billion initially proposed.

The credit union movement's enormous grassroots efforts ultimately resulted in several improvements to the bill. The most important improvements include:

  • a requirement that would force the Federal Reserve to account for fraud prevention costs when it determines interchange fees;
  • an exemption for government pre-paid cards (which could strengthen the small issuer exemption and increase the chances of the card payment networks operating a two-tier interchange system);
  • the removal of a provision that would have allowed merchants to discount between payment card networks;
  • a provision that will force merchants that accept payment from a network to accept all debit cards that operate under that network.

The Fed has nine months to write the rules that will take effect one year after enactment.