Even before the new financial overhaul bill was signed into law on July 21, 2010, significant speculation, confusion, and even misinformation have been circulating throughout the multi-family industry. Many questions have yet to be answered, and many new provisions may not become effective for years.
Like many of you, we’re interested in the implications of this new law and we’d like to share our interpretation. Please understand: we are not attempting to provide any legal advice, and we are not claiming to have a comprehensive understanding of the bill. Like most federal legislation, the Dodd-Frank act will take many years and multiple court interpretations before the true effects are known. We encourage you to seek legal counsel before making any business decisions related to the new law.
With a total of 848 pages, the new law covers a broad range of topics. Our focus has been primarily on section 1075, “Reasonable fees and rules for payment card transactions,” an amendment that was submitted by Senator Richard Durbin of Illinois and passed on May 13, 2010.
Based on our review, this is what we understand:
- Consumer Financial Protection Bureau.1 The bill creates the “Consumer Financial Protection Bureau”, which (among many other things) is granted the authority to implement rules regarding most consumer financial products, including determining “reasonable” fees for financial transactions (e.g. interchange or credit-card transaction fees). The bill stops short of explaining what “reasonable” means, leaving it up to the Bureau to define. The Bureau’s primary focus will be on financial institutions with more than $10 billion in assets (e.g. large credit card networks, big banks, etc.)
- offering discounts or in-kind incentives for use of a specific payment type, be it a competing card network, eCheck, cash, check, or debit card, and
- setting minimum and/or maximum dollar amounts for the acceptance of any form of payment.
Essentially, merchants are granted more flexibility with the payment types they want to promote or discourage, as well as the minimum or maximum dollar amounts they want to accept.
The Dodd-Frank Wall Street Reform and Consumer Protection Act may affect you in the following ways:
- Credit card transaction processing fees (interchange) may be limited by the newly forming Consumer Financial Protection Bureau.
- While card networks may be able to disallow convenience fees entirely (a fee charged in addition to the base fee for goods and services rendered), card networks cannot prevent you from providing incentives (lower or waived convenience fees) for other types of payments (eCheck/ACH, paper check, etc.) The language in this provision is ambiguous and it is likely that card networks would interpret this differently. Changing your processing methodology to take advantage of this provision may be risky. If card networks interpret this differently, you may end up in court where a judge would make the final ruling.
- Card networks have occasionally forced multi-family companies to lower convenience fees they deem “unreasonable”. The new bill prohibits card networks from doing so.
While the bill stops short of solving all the processing challenges we face in the multi-family industry, it does remove certain restrictions that have affected multifamily merchants over the past decade. We will be watching closely for new developments and will keep you updated on any new findings or interpretations we may come across.
View the final version of the bill at the Library of Congress website:
Go to http://thomas.loc.gov/, and use the Bill Number search to find H.R. 4173.
Footnotes:
1H.R 4173, Title X, Subtitle G, Sec. 1075 (a)(2), Sec. 920 (a)(1 and 2). See page 693 of the legislation.
2H.R 4173, Title X, Subtitle G, Sec. 1075 (a)(2), Sec. 920 (b)(2 and 3). See pages 697 and 698 of the legislation.
3H.R 4173, Title X, Subtitle G, Sec. 1075 (a)(2), Sec. 920 (b)(9). See page 697 of the legislation.
4H.R 4173, Title X, Subtitle B, Sec. 1029A. See page 630 of the legislation.
5H.R 4173, Title III, Subtitle A, Sec. 311. See page 145 of the legislation.
