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Compliance Update with Amy K by Amy Kleinschmit, Chief Compliance Officer Interchange Proposed Rulemaking – Submit Your Comments Now CUNA has posted a sample comment letter in their Grassroots Action Center to provide credit unions with an easy tool to send in their comments, which can be found here. Feel free to add any details specific to your credit union to supplement the sample comment letter. However, please do not change the Subject Line of the sample comment letter as the Federal Reserve Board is very particular about what needs to be included – we want your comment letter received and reviewed. As a reminder, 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 proposed rule can be found here, and comments must be received by August 11, 2021 (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 RFI & Comment At the National Credit Union Administration’s (NCUA) recent meeting, the Board approved a notice and request for information and comment regarding digital assets and related technologies. This Request for Information and Comment can be found here and comments must be received within 60 days. The NCUA hopes to learn how the credit union community is using Decentralized Finance (DeFi) and Distributed Ledger Technology (DLT) technologies and gain additional feedback as to the role the NCUA can play in safeguarding the financial system and consumers in the context of these emerging technologies. The NCUA stresses that “the request for information does not speak to the permissibility or impermissibility of any specific activity.” DeFi is the broad category of applications adopting peer-to-peer networks, DLT, and related uses, such as smart contracts, to create digital assets like cryptocurrency and crypto-assets, clearing and settlement systems, identity management systems, and record retention systems. Questions posed by the NCUA range from usage and marketplace to operational considerations. The NCUA also solicits feedback on risk and compliance management issues along with supervision and activities. Finally, the NCUA seeks feedback on share insurance and resolution concerns. Military Lending Act A fun new compliance resource to add your toolbox was recently released by the CFPB: A Military Lending Act Applicability flow chart which can be found here. But wait there’s more! Not only is there a flow chart, but also a checklist for (most) violations. I am kind of a geek for compliance tools, and this gives a nice visual/Q&A process to determine if MLA is triggered. Happy compliancing! InfoSight Content Updates New RISK Alerts are now available from CUNA Mutual Group and are found on the Resources area. Scams Target Victims Via Text or Email Appearing to Be from State Agencies (7/13/2021) Automated Teller Machine "Smash and Grab" Attacks on the Rise (7/6/2021) Transaction Reversal Fraud Targets ATMs (7/6/2021) As always, DakCU members may 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 – Submit Your Comments Now
CUNA has posted a sample comment letter in their Grassroots Action Center to provide credit unions with an easy tool to send in their comments, which can be found here.
Feel free to add any details specific to your credit union to supplement the sample comment letter. However, please do not change the Subject Line of the sample comment letter as the Federal Reserve Board is very particular about what needs to be included – we want your comment letter received and reviewed.
As a reminder, 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 proposed rule can be found here, and comments must be received by August 11, 2021 (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 RFI & Comment
At the National Credit Union Administration’s (NCUA) recent meeting, the Board approved a notice and request for information and comment regarding digital assets and related technologies. This Request for Information and Comment can be found here and comments must be received within 60 days.
The NCUA hopes to learn how the credit union community is using Decentralized Finance (DeFi) and Distributed Ledger Technology (DLT) technologies and gain additional feedback as to the role the NCUA can play in safeguarding the financial system and consumers in the context of these emerging technologies. The NCUA stresses that “the request for information does not speak to the permissibility or impermissibility of any specific activity.”
DeFi is the broad category of applications adopting peer-to-peer networks, DLT, and related uses, such as smart contracts, to create digital assets like cryptocurrency and crypto-assets, clearing and settlement systems, identity management systems, and record retention systems.
Questions posed by the NCUA range from usage and marketplace to operational considerations. The NCUA also solicits feedback on risk and compliance management issues along with supervision and activities. Finally, the NCUA seeks feedback on share insurance and resolution concerns.
Military Lending Act
A fun new compliance resource to add your toolbox was recently released by the CFPB: A Military Lending Act Applicability flow chart which can be found here. But wait there’s more! Not only is there a flow chart, but also a checklist for (most) violations. I am kind of a geek for compliance tools, and this gives a nice visual/Q&A process to determine if MLA is triggered. Happy compliancing!
InfoSight Content Updates
New RISK Alerts are now available from CUNA Mutual Group and are found on the Resources area.
Scams Target Victims Via Text or Email Appearing to Be from State Agencies (7/13/2021)
Automated Teller Machine "Smash and Grab" Attacks on the Rise (7/6/2021)
Transaction Reversal Fraud Targets ATMs (7/6/2021)
As always, DakCU members may contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.