Payment Cards

Position

  • 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 consumer choice in payment card offerings through enhanced transparency, education and fairness; 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 efforts to better improve payment card security by: migrating from magnetic strip technology to chip technology; developing and using tokenization; improving end-to-end encryption; and improving usage of consumer authentication.
  • 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 industry efforts to overturn or eliminate current government price controls and anti- competitive intervention on debit card interchange.
  • 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 supports subjecting prepaid accounts to the same legal and regulatory framework and supervisory oversight as traditional checking accounts. ICBA strongly opposes subjecting prepaid cards to an ability-to-repay exercise and periodic statement requirements.
  • ICBA adamantly opposes prepaid card regulations that require a 30-day wait period before credit can be solicited or requested for a hybrid prepaid-credit card covered under Regulation Z. Community banks should not be required to act as pseudo credit and consumer counselors. Instead, we encourage the CFPB to direct their efforts to educating consumers directly and providing relevant consumer counseling services. ICBA strongly urges the CFPB to move the prepaid card rule effective date from October 1, 2017 to October 1, 2018.

Background

Alternatives to Checking Accounts. Non-banks are increasingly partnering with banks to mass market payment cards that have all the attributes of a traditional checking account providing debit card access, deposit acceptance, check-writing, ATM withdrawals, funds transfer, bill payment and deposit insurance.

Typically, these reloadable prepaid cards are custodial accounts at FDIC-insured banks and therefore are insured under the FDIC’s pass-through insurance coverage up to the maximum allowed per depositor. The CFPB and banking agencies should take appropriate steps to ensure that these reloadable cards and accounts comply with applicable laws and regulations.

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 can 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.

Payment Security. 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 chip, tokenization, and end-to-end encryption. While chip cards, with or without PINs, are a step in the right direction in terms of data security, they are not a panacea. None of the major recent data breaches at U.S. retailers—such as Home Depot and Target—were caused by customers using payment cards without PINs, and none of these breaches would have been prevented by customers using cards with PINs.

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 is participating actively in this migration by conveying the community bank perspective to all stakeholders and communicating the implications of these changes to community banks and their customers.

Interchange. Six years after passage, the Durbin Amendment continues to harm community banks, small businesses and consumers. Community banks are harmed due to greater direct and indirect administrative costs and decreased revenue due to Durbin.

Additionally, 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 ICBA remains actively engaged in the legislative, regulatory and judicial processes and continues to work to roll back the damaging effects of the Durbin Amendment as well as preventing large retailers from further damaging the electronic payments system.

Staff Contacts: Cary Whaley, Aaron Stetter and Rhonda Thomas-Whitley