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Compliance Update with Amy K by Amy Kleinschmit, Chief Compliance Officer Interchange Proposed Rulemaking As previously brought to your attention, the Federal Reserve Board (Board) issued a proposed rule regarding Regulation II (Debit Card Interchange Fees and Routing) to “clarify” that debit card issuers should enable and allow merchants to choose from at least two unaffiliated networks for card-not-present debit card transactions, such as online purchases. The Board considers this a “clarification” but when you really into the details this would be a substantive change for debit card issuers. The Board also issued a biennial report summarizing information on debit card transactions in 2019 which can be found here. The proposed rule can be found here, and comments must be received by August 11, 2021. (The deadline was extended to allow for more data collection and responses.) As many will recall, the Board issued their final rule in July 2011 regarding prohibitions on network exclusivity and routing restrictions for debit cards as required by the Dodd-Frank Act. Regulation II requires that merchants or their acquirers can choose from at least two unaffiliated networks when routing debit card transactions. At the time of the 2011 final rule, for card-not-present transactions, such as online purchases, the market had not developed solutions to broadly support multiple networks over which merchants could choose to route those transactions. The Board has found that currently merchants are often not able to choose from at least two unaffiliated networks when routing card-not-present transactions. Therefore, the Board is proposing revisions to the commentary to Regulation II that will require the applicability of the prohibition on network exclusivity to card-not-present transactions. These proposed revisions to the commentary will direct that card-not-present transactions are a particular type of transaction for which two unaffiliated payment card networks must be available. Also, the Board is proposing changes to “clarify” the responsibility of the debit card issuer in ensuring that at least two unaffiliated networks have been enabled to comply with the regulation’s prohibition on network exclusivity. In other words, the rule will place the burden on the issuer in configuring its debit cards to ensure that at least two unaffiliated networks have been enabled to comply with the regulation’s prohibition on network exclusivity. Regulation II with the proposed amendments would provide that an issuer satisfies the regulation’s prohibition on network exclusivity only if, for every particular type of transaction (as well as every geographic area, specific merchant, and particular type of merchant) for which the issuer’s debit card can be used to process an electronic debit transaction, the issuer has enabled at least two unaffiliated payment card networks to process the transaction. The proposed changes do not affect other parts of Regulation II that directly address interchange fees for certain electronic debit transactions, however, the Board notes that it may propose additional revisions in the future. NCUA Request for Comment - NOL The National Credit Union Administration (NCUA) is seeking feedback on its policy for setting the Normal Operations Level (NOL). The request for comment can be found here and comments must be received by July 26, 2021. Normal operating level means an equity ratio not less than 1.2 percent and not more than 1.5 percent, as established by action of the NCUA Board. As explained in the discussion of the request for comments, “the current economic landscape and pending events related to the corporate asset management estates and NGN Program warrant a re-evaluation of the current Normal Operating Level policy. The current policy objectives include ensuring the Insurance Fund can withstand a moderate recession without the equity ratio declining below 1.2 percent over a five-year period. The economic conditions posed by the pandemic, including industry-wide, unprecedented share growth resulted in an equity ratio of 1.26 percent as of December 31, 2020. These issues have forced the NCUA to consider the ongoing feasibility of using a moderate recession and a five year performance period as the basis for stressing the equity needs of the Insurance Fund.” The NCUA proposed nine questions in its request for comment, however, it is also encouraging comments on any other relevant issues that the NCUA Board should consider. A few of the proposed questions include – Should a moderate recession be the basis for evaluating the Insurance Fund performance during an economic downturn, or should the NCUA change the policy to consider a severe recession? What data source(s) should the NCUA use for determining the characteristics of a potential moderate or severe recession - the Federal Reserve scenario, an independent source, or the NCUA’s judgment? Should the NCUA continue modeling the performance of the Insurance Fund over a five year period or a longer or shorter period? How should the NCUA utilize the modeled potential decline in value of the Insurance Fund’s claims on the corporate asset management estates going forward until the estates are fully resolved? FREE Webinar As part of Military Consumer Month, the National Credit Union Administration is partnering with the Consumer Financial Protection Bureau and the Federal Trade Commission to raise awareness on important consumer financial protection issues related to servicemembers and their families during a webinar that will take place on July 28, beginning at 2 p.m. Eastern. Staff from the NCUA’s Office of Consumer Financial Protection, the CFPB, and FTC will highlight federal resources that help servicemembers, veterans, and their families manage their finances and shield themselves against frauds and scams. Registration for this 45-minute event is now open. OFAC: Do Not Forget Your Blocked Property Report OFAC has posted Guidance on Filing the Annual Report of Blocked Property and emailed a reminder that holders of blocked property under OFAC regulations must provide OFAC a comprehensive list of all blocked property held as of June 30 of the current year by September 30 of each year. Persons that do not hold blocked property as of June 30 do not need to file an Annual Report of Blocked Property (ARBP). As always, feel free to contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.
Compliance Update with Amy K
by Amy Kleinschmit, Chief Compliance Officer
Interchange Proposed Rulemaking
As previously brought to your attention, the Federal Reserve Board (Board) issued a proposed rule regarding Regulation II (Debit Card Interchange Fees and Routing) to “clarify” that debit card issuers should enable and allow merchants to choose from at least two unaffiliated networks for card-not-present debit card transactions, such as online purchases. The Board considers this a “clarification” but when you really into the details this would be a substantive change for debit card issuers.
The Board also issued a biennial report summarizing information on debit card transactions in 2019 which can be found here.
The proposed rule can be found here, and comments must be received by August 11, 2021. (The deadline was extended to allow for more data collection and responses.)
As many will recall, the Board issued their final rule in July 2011 regarding prohibitions on network exclusivity and routing restrictions for debit cards as required by the Dodd-Frank Act. Regulation II requires that merchants or their acquirers can choose from at least two unaffiliated networks when routing debit card transactions.
At the time of the 2011 final rule, for card-not-present transactions, such as online purchases, the market had not developed solutions to broadly support multiple networks over which merchants could choose to route those transactions. The Board has found that currently merchants are often not able to choose from at least two unaffiliated networks when routing card-not-present transactions.
Therefore, the Board is proposing revisions to the commentary to Regulation II that will require the applicability of the prohibition on network exclusivity to card-not-present transactions. These proposed revisions to the commentary will direct that card-not-present transactions are a particular type of transaction for which two unaffiliated payment card networks must be available.
Also, the Board is proposing changes to “clarify” the responsibility of the debit card issuer in ensuring that at least two unaffiliated networks have been enabled to comply with the regulation’s prohibition on network exclusivity. In other words, the rule will place the burden on the issuer in configuring its debit cards to ensure that at least two unaffiliated networks have been enabled to comply with the regulation’s prohibition on network exclusivity.
Regulation II with the proposed amendments would provide that an issuer satisfies the regulation’s prohibition on network exclusivity only if, for every particular type of transaction (as well as every geographic area, specific merchant, and particular type of merchant) for which the issuer’s debit card can be used to process an electronic debit transaction, the issuer has enabled at least two unaffiliated payment card networks to process the transaction.
The proposed changes do not affect other parts of Regulation II that directly address interchange fees for certain electronic debit transactions, however, the Board notes that it may propose additional revisions in the future.
NCUA Request for Comment - NOL
The National Credit Union Administration (NCUA) is seeking feedback on its policy for setting the Normal Operations Level (NOL). The request for comment can be found here and comments must be received by July 26, 2021.
Normal operating level means an equity ratio not less than 1.2 percent and not more than 1.5 percent, as established by action of the NCUA Board. As explained in the discussion of the request for comments, “the current economic landscape and pending events related to the corporate asset management estates and NGN Program warrant a re-evaluation of the current Normal Operating Level policy. The current policy objectives include ensuring the Insurance Fund can withstand a moderate recession without the equity ratio declining below 1.2 percent over a five-year period. The economic conditions posed by the pandemic, including industry-wide, unprecedented share growth resulted in an equity ratio of 1.26 percent as of December 31, 2020. These issues have forced the NCUA to consider the ongoing feasibility of using a moderate recession and a five year performance period as the basis for stressing the equity needs of the Insurance Fund.”
The NCUA proposed nine questions in its request for comment, however, it is also encouraging comments on any other relevant issues that the NCUA Board should consider.
A few of the proposed questions include –
Should a moderate recession be the basis for evaluating the Insurance Fund performance during an economic downturn, or should the NCUA change the policy to consider a severe recession?
What data source(s) should the NCUA use for determining the characteristics of a potential moderate or severe recession - the Federal Reserve scenario, an independent source, or the NCUA’s judgment?
Should the NCUA continue modeling the performance of the Insurance Fund over a five year period or a longer or shorter period?
How should the NCUA utilize the modeled potential decline in value of the Insurance Fund’s claims on the corporate asset management estates going forward until the estates are fully resolved?
FREE Webinar
As part of Military Consumer Month, the National Credit Union Administration is partnering with the Consumer Financial Protection Bureau and the Federal Trade Commission to raise awareness on important consumer financial protection issues related to servicemembers and their families during a webinar that will take place on July 28, beginning at 2 p.m. Eastern.
Staff from the NCUA’s Office of Consumer Financial Protection, the CFPB, and FTC will highlight federal resources that help servicemembers, veterans, and their families manage their finances and shield themselves against frauds and scams. Registration for this 45-minute event is now open.
OFAC: Do Not Forget Your Blocked Property Report
OFAC has posted Guidance on Filing the Annual Report of Blocked Property and emailed a reminder that holders of blocked property under OFAC regulations must provide OFAC a comprehensive list of all blocked property held as of June 30 of the current year by September 30 of each year. Persons that do not hold blocked property as of June 30 do not need to file an Annual Report of Blocked Property (ARBP).
As always, feel free to contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.