WASHINGTON — America’s Credit Unions, the Defense Credit Union Council and a coalition of financial-services trade groups are urging the Federal Reserve to withdraw its proposed amendments to Regulation II, arguing that conflicting federal court rulings and outdated data have left the debit-card market in needless uncertainty.
Regulation II, adopted in 2011, caps debit-card interchange fees. The Fed’s 2023 proposal would lower the cap further — a change the organizations argue would benefit merchants who “have historically pocketed interchange savings rather than passed them on to consumers.”
In a letter, the groups noted the Fed has said it will not finalize the proposal until there is legal clarity. But they said the agency should go further and formally withdraw the rule to give issuers, networks and merchants a clear regulatory path.
Two Contradictory Rulings
The request follows two contradictory federal court rulings earlier this year. A judge in North Dakota held in August that the Fed exceeded its authority when it issued its original 2011 rule, while a Kentucky court ruled in September that the regulation is lawful and reasonable.
“Rather than leaving the debit card market in a state of uncertainty for the foreseeable future while waiting for the resolution of these ongoing court challenges, the Board can provide greater certainty … by withdrawing the 2023 Proposed Rule,” the groups wrote.
Additional Arguments
They also argued that the 2023 proposal relies on 2021 data that no longer reflects the current payments landscape. Since then, they said, the industry has seen substantial shifts — including network-rule changes, rapid growth in contactless and mobile-wallet usage, and the impact of the Fed’s 2022 amendments addressing card-not-present transactions. The organizations urged the Fed to publish its 2023 survey data before considering any changes to debit-interchange policy.
America’s Credit Unions said it met with Fed Governor Stephen Miran last month and has outlined in detail what it views as the proposal’s harms. The group said it will continue advocating in support of the existing interchange framework.
The full letter can be found here.
DCUC urges Action on Lending Limits
Separately, the Defense Credit Union Council is calling on House lawmakers to modernize federal lending limits that it says are blocking military veterans from accessing affordable business capital.
In a letter sent to House Small Business Committee Chairman Roger Williams, (R-TX) and Ranking Member Nydia Velázquez (D-NY) ahead of Tuesday’s hearing, “From Service to Startup: Empowering Veteran Entrepreneurs,” DCUC praised lawmakers for spotlighting the financing challenges facing current and former servicemembers seeking to start or expand businesses.
At the center of DCUC’s message to lawmakers is the federal Member Business Lending cap, which limits business loans at federally chartered credit unions to no more than 12.25% of their assets. Unlike banks, credit unions must comply with the cap even when they are well-capitalized and willing to lend, the group said.
Veterans ‘Turned Away’
As a result, “many veteran entrepreneurs are turned away, not because of credit risk, but because of the arbitrary ceiling,” DCUC s wrote.
The organization urged the committee to advance the bipartisan Veterans Member Business Loan Act, introduced as H.R. 507 in the House and S. 110 in the Senate, which would exempt loans to veteran-owned small businesses from the cap. DCUC said the change would expand access to credit “at no cost to taxpayers” and allow community-based credit unions to serve more veteran borrowers.
“Veteran-owned businesses play a critical role in the U.S. economy, generating nearly $1 trillion in annual revenue and employing about 5 million Americans,” Jason Stverak, DCUC’s chief advocacy officer, said in the letter. “Yet they face disproportionately high credit denial rates and persistent financing shortfalls. Removing the MBL cap for veteran business loans would help bridge this gap and spur new economic opportunities nationwide.”
Ready as ‘Soon as Congress Acts’
DCUC said its member credit unions are prepared to responsibly increase lending “as soon as Congress acts” and called on lawmakers to move the legislation forward.
“Veteran entrepreneurs deserve full access to capital, and credit unions are uniquely positioned to provide it,” the council wrote.
