ICBA Policy Resolutions for 2013
Track I: Legislation and Regulation

PAYMENT CARDS

Position 

• ICBA strongly supports a payments card operating environment governed primarily by network rules to ensure a well functioning and balanced payment card system that provides tremendous benefit for community banks, their customers and millions of merchants of all sizes.
  
  
• ICBA strongly opposes efforts to have the government set or limit payment card interchange or other fees, mandate interchange fee disclosure to consumers, or create antitrust exemptions allowing merchants to “negotiate” or “operate” in anti-competitive and collusive ways to the detriment of community banks and their customers. Government intervention should not provide one payment card type advantages over other payment card types.
  
  
• ICBA supports payment card network rule modifications that would re-balance authorization, clearing and settlement, and guarantee provisions; and compensate issuers based on the authorization method selected by cardholders.
  
  
• ICBA strongly opposes efforts that, while theoretically intended to prevent unfair, deceptive or abusive payment card acts or practices, would adversely affect community bank payment card issuers and agents as well as their customers. National interest rate and fee caps would directly harm customers with less-than-perfect credit, especially those at the margin, and further reduce competition and stifle innovation in features and functionality.
  
  
• ICBA opposes efforts to extend consumer protection provisions to small business payment cards.
  
  
• ICBA supports simplified credit card disclosures; however, ICBA opposes any efforts to create a disclosure regime that would have the effect of limiting choices for consumers across the socio-economic spectrum, or subjecting community banks to legal and compliance scrutiny.
  
  
• ICBA supports consumer choice in payment card offerings through enhanced transparency, education and fairness.
  
  
• ICBA supports efforts to transition payment cards from magnetic strip technology to chip technology provided community banks are given sufficient time to plan for and implement this transition.

Background

Interchange. The payment card interchange system in our country was working well, providing tremendous benefit to American consumers and merchants of all sizes and types until the Durbin Amendment to the Dodd-Frank Act imposed price controls on debit card interchange. For the first time in the industry’s history, the government is effectively setting the price in a business-to-business transaction.

The verdict is still out as to whether the small debit card issuer exemption from the interchange fee cap is indeed shielding community banks from the negative impact of government price fixing. ICBA is working to ascertain the impact of new and evolving marketplace dynamics (network pricing, network routing rules and issuer, network and merchant implementation) on this exemption.

Despite a settlement between merchants, payment networks and large banks in their class-action case, merchants continue to want to pay less for the benefits they receive when they accept payment cards. Merchants are vigorously pursuing various legislative strategies to further shift their payment card interchange costs to consumers, and are likely to continue to push Congress to regulate credit card interchange fees and further weaken payment network rules in the future. If merchant efforts are successful, community banks and their customers will pay more to provide merchants, especially larger ones, with those benefits. Retailers like Wal-Mart should not be given an even greater ability to squeeze local small businesses on margin, nor should community bank customers be forced to subsidize that anti-competitive behavior.

ICBA remains actively engaged in both the regulatory process and in Congress and continues to work to prevent large retailers from further damaging the electronic payments system.

Consumer Protection. Community banks provide a menu of payment card services to execute the exchange of monetary value. Community banks strive to balance the mandate to maintain transparent, safe, sound and profitable payment card programs with the needs of financially varied customer bases.

Congress and the federal agencies must exercise caution in ensuring that efforts to establish and maintain an environment protecting consumers from unfair, deceptive, or abusive acts or practices does not unnecessarily impede community banks’ ability to respond flexibly to changing markets and consumer needs. A well-informed consumer has the ability to shop with his or her feet, a free-market factor that benefits community banks that thrive on successful relationship banking.

National interest rate and fee caps would reduce competition as small issuers without scale may exit the business if they cannot compete with larger scale issuers on price alone. Efforts to place caps on rates and fees would also force small issuers to cut off credit to those most in need, and would likely raise the cost of credit to all other borrowers.

Congress and the federal agencies should remain mindful that community bank payment card programs need to be profitable. If this balance is not maintained, community banks will give greater consideration to discontinuing various products, particularly credit cards, which would result in further consolidation of the industry and fewer choices for consumers. Policies that generate more compliance costs for community banks will not benefit consumers.

Chip Technology. Payment card system stakeholders – networks, merchants, card issuers, and cardholders – are concerned about the growing security risks and the need to move to more sophisticated and secure technology such as the chip and PIN. But re-engineering a payments system is not easy task as there are many players that need to collaborate, from the card networks and processors to the bank issuers and merchants. ICBA will participate actively in this migration by conveying the community bank perspective to all stakeholders and communicating the implications of this migration to community banks and their customers.

Staff contacts: Viveca Ware, Elizabeth Eurgubian, Cary Whaley

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