Posted by Sharon Robb on Wed, Jul 28, 2010 @ 11:20 AM
On July 21st 2010 President Obama signed into law, Barney Franks Restoring American Financial Stability Act of 2010. The purpose of the bill is to protect American consumers from abusive financial practices and create accountability and transparency in our financial systems. Some of the specifics of the Act can be read from the actual bill (link above) or Wikipedia already offers a solid outline on the regulatory agency's and issues - check it out.
Tucked neatly inside the bill is what interests us - the Durbin Amendment . In basic terms, the bill amendment gives the Federal Reserve final say on whether or not debit card interchange fees proposed by Visa and MasterCard are reasonable and proportional to the actual processing costs. It would also allow merchants to offer discounts for non-card purchases as well as the power to set minimum/maximum card purchase amounts. Not surprisingly the amendment was strongly supported by our largest retailers and merchant groups, claiming their lower costs would also benefit the consumers via a lower cost of goods.
Like the rest of the law - it will take time to clarify, study and then finally implement - and the federal government has a year to determine what reasonable and proportional is. Banks with assets under $10 billion are exempt from the regulation.
Advocates of the amendment often refer to all interchange as a "hidden tax", but interchange was introduced with credit cards and why is this cost of doing business different from the cost of utilities, shipping, and various overhead that we know from business 101 is incorporated into the cost of goods sold? A May 2010 article in the WSJ was the first I've read lambasting what we tend to forget - cards have been a coup for retailers and consumers. The consumer gets protection in the case of a bad purchase or return policy, rewards, efficient tracking and reporting on purchases, payment convenience and the retailer increases sales, reduces theft at the register, limits fraudulent checks, etc. There ARE benefits.
So what's going to happen? the fall out as it were? only time will tell but there are lots of opinions out there, some pro the regulation, some not so much.
No one knows for sure but here's what's being bandied about -
- Merchants - will set minimum purchase amounts for consumers to use cards, may offer cash discounts or charge a surcharge to use a credit card (that's gonna hurt), and will see lower processing costs for debit cards if the Fed's say current rates are too high. Will savings be passed along to the consumer/buyer - most guess no.
- Banks - have billions in revenue at stake that may be lost. If this happens chances are consumers will see an uptick in other fees - checking accounts, annual credit and even debit card fees, etc. Rewards programs could be eliminated. Banks are not non-profit entitys - if they lose money in one area - they will look to create it in others. The consumer will pay the price.
- Buyers/Consumers - may lose the ability to make low end purchases with a debit card (under $10? under $20?), will see an increase in overall banking fees, credit could get tighter if banks tighten reins because their capital base is squeezed, more limited payment options.
- Community Banks and Credit Unions - not included in the regulation if revenues are under $10 billion, were not pro its passage. They worry that merchants will find a way to not accept their cards at the POS because of the higher interchange costs and they will not be competitive in issuing debit cards - may lose customers.
Most surmise that the only group that will benefit of course, are merchants, whose cost of accepting debit cards will likely go down. We'll see.
In the meantime, we are in agreement with a recent June article by Kate Fitzgerald in ISO & Agent Weekly - an industry rag - where she quotes a report by the Mercator Advisory Group -
"The amendment "appears to largely view debit payments as though they were a 'public utility,' failing to recognize the substantial innovations and competition occurring in this area surrounding fraud and security needs, risk assessment, timely settlement, guaranteed payment, and other social benefits." Interchange represents the cost of a business to business transaction in an remarkably competitive market with rapid innovation. Who should determine this cost? Who determines your cost of goods? your services?
Whatever happens, we'll let you know....keep an eye on that bank account - associated costs may grow next year, and for gosh sakes carry cash... in some instances, it may become your only payment option. One step forward, two steps back?
Posted by Sharon Robb on Thu, May 06, 2010 @ 09:01 AM
PCI DSS continues to create questions for our merchants.
Who created the standards? Are they law ? (very nice but do we have to?) who's enforcing all this stuff? and so on.
The standards are developed by a security council comprised of the major card brands and most everything you need to know can be found on their site - PCI Security Standards Council. You can find merchant requirements by size right here on our PCI DSS blog.
Enforcement and the law are other issues.
Currently PCI DSS is "enforced" by the card brands and put in place by payment processors. The processor works with each merchant and merchant account to ensure standards are met and the merchant is charged for the cost of compliance. Merchants found to be out of compliance, who experience a data breach, can be fined by Visa or MasterCard and risk losing credit card processing privileges (think livelihood folks).
Two issues stand out when it comes to the law, merchants and securing the confidential data of consumers using credit cards to purchase goods and services - notification of data breaches and PCI DSS compliance.
Data Breach Notification. If a breach is detected by a merchant...do they have to tell and WHO do they have to tell? Currently and amazingly, there is no federal law legislating actions regarding a data breach though they are in the works. S.139 - the Data Breach Notification Act is still alive but hasn't gone any further since November of 2009, H.R.2221 Data Accountability and Trust Act - last point of action- was passed in the House in Dec. 2009. These things take time.
Your state may be another story. Since 2002 and California's SB1386, many states have enacted notification laws requiring companys to notify consumers if their data has been lost or "compromised". Typically the laws address what must be reported to the consumer - type of data compromised, who must report the breach, how consumers will be notified (electronically, in writing, etc.) and how quickly.
To see if your state has a law regarding security breaches check this list from the
National Conference of State Legislatures - almost all do.
While each law is different, in addition to notification - legislature seems to be moving towards merchant liability in security breaches (maybe data security ISN'T such a bad idea!). In other words, states are also enacting PCI DSS compliance law.
The state of Minnesota is the first to make merchants (2007) not compliant with PCI DSS liable for associated financial institution costs in instances of security breaches (i.e. reissuing cards, customer refunds for unauthorized charges, closing and reopening accounts, etc.). Could be costly.
In 2009 Nevada updated its encryption law to mandate all businesses in the state that accept credit and debit cards be PCI DSS compliant - pretty strong statement. In March of 2010, Washington enacted merchant liability laws relevant to PCI DSS compliance similar to that of Minnesota. Businesses with a breach, found to be out of compliance, will be held financially responsible for costs associated from the incident. Merchants take note - these laws apply to out of state businesses transacting business in the state.
It's worth noting here I guess that some of these new laws are relevant only to merchants handling a large number of transactions or level I merchants. We suspect however, that not only will other states follow suit but to some degree, eventually - all levels of merchants will be held liable for compliance.
Moral of the story? PCI DSS is not going away. Expect standards to get tougher if anything and while the federal government is lagging - states are taking steps to protect consumer card data. If you're a credit card processing merchant - you should be too.
Posted by Sharon Robb on Sat, Feb 27, 2010 @ 09:10 AM
And by chaos you know what I mean - the financial debacle in the US, right now. The Dow's up -but for how long? Lending is non-existent, bankers are still drawing some ah, unusual salaries and bonuses and now Barney Frank of the House Financial Services Committee says the issue of interchange fees is not on the 2010 agenda.
Arggghhhh. That's for my merchant friends. I can tell by the way they hang up when we call them to market our electronic payment services that they are confused about what we do....we don't make money on interchange. We do collect interchange fees for card issuing banks for each credit or debit card transaction run by our merchants. We PROCESS the transaction. Whew! just wanted to clarify... again.
If you're still confused about interchange revisit our blog on the issue -you're certainly not alone.
What is of concern is the rising cost of these fees - set by VISA and MasterCard and paid to the banks that issue their branded cards - for the merchants that pay them. Merchants and advocacy groups have been pushing for years for interchange fee regulation and caps - claiming the fees force them to raise the costs of their goods and services to the consumer. Maybe.
Unfortunately the issue is complex. Will the regulation of fees really mean a cost reduction on the consumer end of things? A November 2009 article in the New York Times examines the outcome of just such an act when the Australian government stepped up in 2003, cutting merchant fees in half. The results have been predictable - tough to sort through.
While merchants are paying less - it would seem sometimes the consumer is paying more - with less available credit, fewer or shrunken rewards programs (no!), higher annual credit card fees, and shorter time periods before the accumulation of interest on balances.
More bizarre is the unexpected surcharges by Australian retailers and merchants to the consumer that uses a credit card (not allowed currently by the card networks but with deregulation....) - and this after their own costs have been lowered. Not only are some merchants covering costs with the surcharges, some are making a profit. Now that's a fine how do you do!
Yes, US banks make billions from interchange fees. They have lobbied hard against government intervention and claim that the consumer will experience rising costs with credit card use and fewer benefits should the fees be capped or regulated. Again, maybe.
Of course last year keep in mind - a new trend developed that will no doubt ooze into 2010, maybe even beyond - record losses. In yet another NY Times article last year, Banks Brace for Credit Card Write Offs, authors Dash and Martin tout estimates of between 82.4 to 186 billion in overall losses for card issuing banks, as the US continues to shed jobs and with that, the ability of Americans to pay their credit card bills.
What to believe? What to do?
Only that at the very least, for 2010 anyway - interchange fees will remain intact - plan on it. Merchants should be aware of costs and educate themselves on how to implement cost saving processing methods. The credit card processing industry seems hell bent on ever increasing complexity.
To do this, you need an electronic payments professional you can count on, not entry level sales staff. That's just the way it is. ASK your provider...how long have you been in this industry? Review your methods and pricing, secure a professional relationship and focus on what you do best - you're own products and services.
Posted by Sharon Robb on Fri, May 01, 2009 @ 08:35 AM
On to the Senate!
The House rapidly passed the Credit Cardholders Bill of Rights Act of 2009 just yesterday in a 357 -70 vote (don't you wonder who the 70 are?) This bill, strongly supported by President Obama and sponsored by Rep. Carolyn Maloney, D-N.Y. who has been pushing the legislation for a long time, now goes to the Senate.
If you recall, the Federal Reserve Board has issued even stronger rules for credit card issuers but the legislation does not go into effect until next year.
The bills take aim at some of the more outrageous practices by issuers - most notably - contracts that can be changed at whim - but only by one party - the card issuer. Not my kind of party, and not much of a contract.
The 70 holdout votes keep touting the industry line - consumer protection legislation will further clamp down on the available credit. Consider the median "allowable" penalty interest rate was 27.99 percent per year...do we really NEED that kind of credit?
Click here for a complete text of H.R.627 - The Credit Cardholders Bill of Rights Act. Thanks Maloney!
Posted by Sharon Robb on Mon, Apr 20, 2009 @ 08:30 AM
Whose Squeezing Who in Credit Card Fees?
Lots of credit card stuff in the news these days, primarily regarding those who issue cards - and the consumers who use them. XBS does not issue credit cards - nor do we set fees or make money on fees such as interest rates or late payments - charged by the banks to their credit card customers.
We are a little miffed by the loose, interchangeable, use of terms such as "credit card" companies verses "credit card" issuers, in the media and even by legislators that continue to muddy this complex industry - lets clarify.
Banks - we all know who they are. Banks issue credit cards to their customers (and those they hope will become customers). Customers/consumers must apply for the credit card and based on their credit scores and perhaps other factors - are given cards with credit limits. Charlotte's own Bank of America is the 2nd largest issuer of credit cards - with $182 billion in outstanding balances last year and more than 11 billion in charge offs - (see recent Observer story).
Credit cards are not the same as debit cards - which are attached to checking accounts. Consumers and customers who use credit cards are purchasing based on a future promise to pay - just like loans. Those who pay their balances in full - do not pay interest - those who do not - pay interest on the balances - those who pay late - pay late fees and risk (almost certainly) an increase in the interest rate of the card - even on past balances.
There was a time when we were inundated by credit card offers but times have changed. In this past year banks have closed what they consider to be risky accounts, are far more picky about those they issue cards to and many see this as a trend that will continue - especially if consumer protection laws pass - and banks lose some of their ability to raise and implement fees at will.
Visa and MasterCard - are public multinational corporations that manage the electronic payments transactions - between financial institutions (banks), merchants, government, consumers and businesses. These companies are also, like banks, often referred to as "credit card" companies, but again, they do not set interest rates or fees charged the customer by the bank. These companies make money through merchants who accept credit cards and their transactions or sales - that's another blog - and different legislation. XBS works on the merchant side of the industry - bringing electronic payment services and education to the merchant.
There are several legislative bills currently circulating in both the senate (Senator Dodd - D- Conn) and the house (Rep. Maloney, D-NY) right now (April 2009) to ensure fair credit card practices for consumers. These bills are primarily aimed at fees and practices/policies embedded in the contractual agreements (a lot of very fine print - and subject to change at the issuers whim) between the consumer and the bank - the card issuer.
Some of the policies and fees being scrutinized for legislation include -
- Increasing card interest rates based on unrelated creditor payment history/activity (universal default)
- Fees charged for phone payments
- Marketing cards to teens and young adults who are uneducated in how credit works
- Abrupt increase of interest rates - or increasing rates on past balances - for any reason, anytime
- Allocating payments to balances with lower interest rates first - before those with higher rates (unfair allocation)
Numerous industry studies point to continued growth in credit card use, and all forms of electronic payment. For those reasons and more, XBS supports legislative change that will protect consumers from usury and unscrupulous fees and contracts for credit card use (we're packing credit cards too!).
We just don't like the interchangeable use of terms like banks, "credit card" companies and "credit card" issuers. It confuses consumers, our customers and our industry.