WASHINGTON — America’s Credit Unions is urging the Federal Reserve to withdraw proposed changes to debit card interchange rules, take a cautious approach to expanding access to Federal Reserve master accounts, and modernize regulations governing check holds to combat rising fraud.
The recommendations came in a letter sent Tuesday to Senate Banking Committee Chairman Tim Scott (R-SC) and Ranking Member Elizabeth Warren (D-MA) ahead of Wednesday’s hearing on the Federal Reserve’s semiannual monetary policy report to Congress. The letter is similar to that sent to the House.
In the letter, America’s Credit Unions said it continues to oppose the Federal Reserve’s 2023 proposed amendments to Regulation II, which governs debit card interchange fees. The organization said the proposal has remained unresolved for more than two years because of ongoing litigation and argued that formally withdrawing it would provide greater certainty for financial institutions and the debit card market.
‘Proceed Cautiously’
The trade group also called on the Federal Reserve to proceed cautiously as it considers changes to policies governing access to Federal Reserve master accounts. America’s Credit Unions said applicants that are not subject to the same supervisory standards as federally insured banks and credit unions could pose operational and cybersecurity risks to the payments system, particularly if they rely on decentralized finance platforms or complex information technology infrastructures.
The letter further urged the Federal Reserve and the Consumer Financial Protection Bureau to work together to modernize Regulation CC, which implements the Expedited Funds Availability Act.
America’s Credit Unions said the current rules governing when deposited funds must be made available have contributed to mounting losses from check fraud because financial institutions are often required to release funds before they can determine whether a check is legitimate.
CUs Report Five-Figure Losses
According to the letter, some credit unions have reported monthly fraud losses in the five-figure range after checks were returned beyond the regulation’s five-day extended hold period, while others have experienced losses reaching six figures on checks made available within the standard two-business-day timeframe.
The organization also said current requirements to document why a check’s collectability is in doubt can be difficult to administer and could inadvertently expose proprietary fraud detection methods if disclosed in detail. It urged regulators to provide greater flexibility in both documenting exceptions and determining how long funds may be held when fraud is suspected.
The Senate Banking Committee is scheduled to hear testimony Wednesday from Federal Reserve Chairman Kevin Warsh as part of the central bank’s semiannual monetary policy report to Congress. Warsh also testified on Tuesday.
