Nearly a year after implementation of the Durbin Amendment to the Dodd-Frank Act of 2010 began, members of the payments industry have coalesced in Washington to exert greater influence in shaping policies governing the industry moving forward. For many, the debit interchange fee regulation set forth under said amendment represented a direct challenge to one of the key tenets of free enterprise: it blurred the line between government and private industry in determining pricing.
To put it into perspective, during the Electronic Transactions Association's 2012 annual meeting, Mary Bennett, ETA Director of Government and Industry Relations, proclaimed "the era of self-regulation has ended." She later told The Green Sheet the Durbin Amendment marked the first time in recent years Congress had passed price controls on private industry, recalling the 1970s price controls on oil, consumer prices and wages, which led to gas shortages and higher inflation.
Today's surge of intervention by lawmakers correlates closely with the financial collapse of 2008 and the failure of existing regulations to control the perpetrators. "The general sentiment was that the financial industry was out of control and reckless and needed to be reined in and pulled back," Bennett said. "That kind of atmosphere is what we had in Washington, and I would argue still persists today.
"It really was the first time we saw legislation and regulation that dug deep down into our business models. The Durbin Amendment was different. It struck deep into the bowels of the business and set a price. I had many people say to me, 'I had no idea that government could decide how to price things.' They were stunned by it, and even people in Washington were stunned by it."
In the original bill proposed by Sen. Richard Durbin, D-Ill., regulation of credit interchange was also stipulated. But Bennett attributes educational efforts on Capitol Hill by bank and industry groups with convincing lawmakers to exclude credit in the final draft. However, the battle may not be over. "Retail associations and Senator Durbin himself have said publicly that credit is next and that they want to find ways to rein in the cost of credit interchange," she said.
According to Bennett and other payments industry professionals interviewed by The Green Sheet, the political agenda in Washington demands ongoing vigilance and input from the industry to inform the decisions that will impact payment structures of the future.
Larger corporations often have the resources to hire their own lobbyists, but small to midsize businesses must rely on trade associations to represent the collective voice of similarly sized constituent bases. Serving as front-line educators, industry groups are frequently invited to participate in hearings and committee meetings on topics when outside expertise is needed. Today, mobile payment and cyber-security legislation share the stage in Washington.
"We are already working with several government agencies in their exploration of mobile payments," Bennett noted. "In a very positive way, we are engaged with the Department of Commerce, The Treasury Department, Congress - in the House and Senate.
"They are all undergoing exploratory hearings and meetings to understand mobile and to understand who in the existing regulatory regime would have responsibility for overseeing them. I believe we're on the leading edge with this." To support the process, the ETA recently formed the Mobile Payments Committee to develop industrywide policy and business solutions.
Another industry group, the Smart Card Alliance, made its debut appearance on Capitol Hill in March 2012. It was at a House Committee on Financial Services subcommittee hearing titled The Future of Money: How Mobile Payments Could Change Financial Services. SCA Executive Director Randy Vanderhoof said the hearing provided an opportunity to extend the alliance's reach to lawmakers and address questions critical to understanding mobile payments.
"We're in the best position to provide the knowledge that the regulatory agencies or the congressional hearing bodies need to have so that they feel informed and are positioned properly to address any shortcomings that might happen," Vanderhoof said. The SCA has also dovetailed with registered lobbying organizations, such as the Secure ID Coalition, providing resources to support coalition positions in the legislative review process.
Vanderhoof, who has since participated in subsequent mobile committee meetings, stated, "I would suggest that it's still very early in the game for government regulation to step in and start to make its presence known until there is enough activity in the market and that there is any evidence that the market is heading in a direction that is going to be harmful to consumers."
Will Graylin, Chief Executive Officer of ROAM Data Inc. and a member of the ETA Advisory Council, concurred. "There is still a big gap between actively looking at what's happening in the mobile payments industry to actual actions," he said. "You can tell that there is momentum there, but the attendance, by the number of senators, is very sparse." Nonetheless, Graylin believes now is the time for the payments industry to be heard in Washington on the subject of mobile payments.
Graylin also discussed the importance of data security. "I see smaller holes trying to be patched up with large efforts, such as EMV [Europay/MasterCard/Visa], and larger holes with no good answers, such as card-not-present fraud," he said.
He added that the recent rise in unaccounted for fraud, largely due to mobile card skimming, is an alarming trend. He feels it could be remedied by leveraging mobile phones as authentication mechanisms and by implementing stricter monitoring of mobile card readers.
Bennett views the proposed national cyber-security legislation as having two possible approaches: one government mandated, the other managed by private industry. She also noted that financial system data security is less pressing to lawmakers than other areas of concern (for example, the electricity grid and water delivery systems) because the financial system has done more to secure its infrastructure than other vital sectors have done.
"The national standard for breach notification is a tiny piece of those bills, but it's one that has a lot of support, and we'd like to see included in the final vehicle," she said.
The ETA represents the merchant acquiring side of electronic payments, but other organizations play equally vital roles in different segments of the financial services ecosystem. For example, the American Bankers Association and the Consumer Bankers Association represent card issuing banks of all sizes.
Community bankers in small, independent and regional banks turn to the Independent Community Bankers Association, and the Electronic Payments Coalition promotes the economic growth of its credit union, community bank and payment card network members.
Regardless of group affiliation, Bennett has found that ISOs and merchant level salespeople (MLSs) generally wield the most influence at the committee level or when volunteering to speak to lawmakers about industry-related matters. "It's always more valuable for government officials to hear from businesspeople themselves than from me," Bennett said. "My job is to help facilitate meetings and to get the right people involved." TransFirst LLC President of Financial Institutions Marla Knutson chairs the ETA Government Relations Committee alongside co-chair Victoria Strayer, Senior Director of Enterprise Business Compliance for Total System Services Inc.
Working with financial institution clients across the nation, Knutson must continually follow legislative activity, not only at the federal level, but in all 50 states. The aggressive overhaul of financial regulation in recent years was a call to action for her. "I think that government legislation and regulation are heavily impacting the financial industry today, some of it needed and some of it not needed," she said.
ETA Government Relations Committee members recently met with the Consumer Financial Protection Bureau and the Federal Trade Commission. "Our goal in working with a lot of these government entities is to let them, first of all, know who we are," Knutson said. "Secondly, to let them know that we are an organization that they can reach out to when they are making decisions and setting policies."
As a compliance expert, Strayer said, "I actually love the dynamics that are occurring between the industry, the regulatory bodies, what's happening in Congress, and how we can make sure that we're helping and protecting not just the big guys, but the consumers and the mom-and-pops.
"We all have a responsibility to be a voice. The meetings that we had with the CFPB and the FTC were incredibly successful, but that would be a one-time success if we don't build on it."
For Strayer, active participation in trade organizations effectively harnesses the collective message. "Instead of trying to get 500 companies to the Hill to have meetings, we can be that voice for them and recognize where the gaps are, and serve as a conduit between the regulatory bodies or the staffers on the Hill and the large constituency that somebody like ETA represents," she said. "Many times our end goal is very similar."
However, Strayer is quick to point out that Congress is politically driven, and lawmakers react most to issues of importance to their constituents. Frequent government staff turnover and rapid changes occurring in the payments sphere mean the dialog must continue, which keeps the door open for more payment professionals to become involved, she noted.
"We need to be sure we're part of that conversation so that we can ensure they're understanding the value from a merchant perspective, from the players in between that are so important to actually delivering a safe and robust solution to the consumer at the point of sale that the consumer understands," Strayer said. "That's what we all want, a happy consumer that is participating in electronic commerce."
According to data from GovTrack - a privately managed website that tracks lawmakers' voting records, committee actions, federal bills and resolutions, and individual state legislation - 11,553 bills and resolutions were before Congress just before this publication went to press. Of that number, roughly 5 percent were expected to become law before the 112th Congress concludes its final session.
GovTrack users can sign up to receive free status updates on legislation relevant to their business interests. "As an everyday small mom-and-pop merchant or consumer, I can now download this GovTrack app onto my iPad and sign up for things that are important to me, and I can get updates on those very specific things," Strayer said.
Another resource for tracking the status of federal legislation is the Thomas website run by the Library of Congress. Though considered to be less user-friendly than GovTrack, the House voted unanimously in June 2012 to create a task force to study the effectiveness of converting the website to a faster format.
MLSs can also participate when regulatory bodies seek public comments before making policy decisions. Strayer said a recent example was the CFPB call for comments regarding extension of Regulation E to include general purpose prepaid cards. The ETA also periodically sends political action alerts to members who sign up to receive them.
The final piece of advice from Bennett is to start at home by getting to know local members of Congress, which begins with a visit to their websites and "liking" them on Facebook. "They will track you, and you'll be on their mailing list," she said. "If you send a one sentence email to them, they track it. They count it, and they keep track."
Bennett also recommends attending town hall meetings and fund-raising events orchestrated by district representatives. She suggested that in face-to-face encounters, MLSs could say something like, "I am Sue Smith and I work at XYZ Company and I live in your district. The Durbin Amendment has been very bad for my business, and I don't want to see anything like that happen again." Bennett believes efforts like this will have an impact because opinions expressed by voters resonate strongly with lawmakers.
So, send an email, make a phone call, pay a visit to the lawmakers elected to represent you. In short, make noise. No one can represent your interests better than you can.
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