Beyond PCI: Other Regulations to Look For in 2009
Dec. 22, 2008
Marc is a partner
McKenna Long & Aldridge LLP
One of the trends most likely to affect the card industry in 2009 is the prospect of additional regulation. Two areas -- card practices and interchange -- are most likely to come under scrutiny.
Just a few days ago, the Federal Reserve, the Office of Thrift Supervision and the National Credit Union Administration announced the enactment of comprehensive new rules regarding card practices. These rules, which will not take effect until July 1, 2010, impose restrictions on a number of controversial issuer practices, including interest rate increases, late fees and double-cycle billing. Many industry observers predict that the rules will result in less credit being made available, and on stricter terms, than has been the case over the last several years.
These rules may not be the end of the matter. Rep. Carolyn Maloney (D-NY), who in 2008 introduced the Credit Cardholders’ Bill of Rights Act of 2008 (which sought to regulate many of the same practices as the then-proposed Fed rules), stated that she was disappointed in the delayed effectiveness of the Fed rules and promised to revive the Credit Cardholders’ Bill of Rights in 2009 to, as she put it, “bridge the gap” between now and the effective date of the Fed rules.
Interchange regulation will also continue to be another hot topic for U.S. regulators. In March 2008, Rep. John Conyers (D-MI) introduced the Credit Card Fair Fee Act of 2008, which sought to mandate information disclosures by and subsequent negotiations among issuers, acquirers, merchants and card associations to agree upon new, presumably lower, interchange rates in place of those being used today.
The bill, which was at the same time hailed by merchant groups and vociferously opposed by banks, passed by a slim margin in the House Judiciary Committee with remarkably bipartisan support, but did not make it to a full House vote in 2008 in part because of the onset of the larger financial crisis and recession. However, most observers think it is likely that interchange legislation -- whether in this bill, a similar bill or a larger omnibus banking reform package -- will be seriously considered in 2009.
While these developments are not directly aimed at acquirers or ISOs, both are nonetheless important to that constituency. For one, decreasing availability of credit to consumers generally could trigger a decrease in transaction volume, or could signal a shift from VISA and MasterCard credit cards to other credit cards like Discover or American Express, which may not be covered by potential interchange regulation. Another possibility is that credit volume will decrease at the expense of debit, prepaid and other “alternative” payment products. Whatever the case, given the symbiotic nature of the card industry, anything that affects issuers as drastically as these developments would are likely to have ripple effects throughout the industry.
Consumer and merchant groups have succeeded in getting Congress’ attention on these issues, and appear to have momentum on their side. Also, the results of the November election and the recent economic woes seem to suggest that Americans’ attitudes toward government regulation are changing. Expect 2009 to be a busy year on the legislative and regulatory front for the card industry.
Marc D’Annunzio is the co-chair of the Payments Practice Group and a partner in the Corporate department of McKenna Long & Aldridge LLP, a law firm with more than 400 attorneys with offices across the United States and in Brussels, Belgium. Marc focuses his practice on mergers, acquisitions, strategic alliances, joint ventures and corporate counseling for companies in the payments industry. Additional information about McKenna Long & Aldridge is available at www.mckennalong.com. The views expressed in this article are solely those of the author and not necessarily the views of McKenna Long & Aldridge or its clients.