Compliance Article
02/22/2008
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Effective April 2008, the conditions under which Visa USA (Visa) charges financial institutions its International Service Assessment (ISA) are changing. Previously, Visa only charged the ISA on international transactions that involved currency conversion. So, for example, if a cardholder used a Visa-branded debit card in Mexico and the transaction was converted from pesos to U.S. dollars, Visa would charge the card-issuing financial institution an ISA of 1%. On the other hand, if the merchant settled in U.S. dollars, the card-issuing financial institution would not be charged an ISA. With this change, however, Visa will now charge financial institutions an ISA on all international transactions regardless of whether there is a currency conversion. This is similar to the change MasterCard® made a few years ago. However, instead of using two separate fees, Visa is charging financial institutions a different amount depending on whether the international transaction involves a currency conversion. If there is no currency conversion (what Visa labels a “single-currency transaction”) the ISA is 0.8% of the transaction; if there is a currency conversion (a “multi-currency transaction”) the ISA will continue to be 1% of the transaction. Visa defines an international transaction as a transaction where the issuer’s country (i.e., the card-issuing financial institution’s country) is different than the merchant’s country. Thus, a transaction over the Internet could qualify as an international transaction.
How these ISA changes impact account opening disclosures
These changes could affect a financial institution’s account opening disclosures if the financial institution offers a Visa-branded debit card and the institution passes the ISA on to the cardholder. Both Regulation E and Truth in Savings require such fees to be disclosed. In addition, many financial institutions add text to the initial Reg E disclosure to help comply with Visa’s private rule requirements. For example, for a number of years Visa has required institutions to explain the currency conversion process to cardholders. Many institutions also use this section to disclose that they are passing the ISA on to the cardholder. Since the conditions under which the ISA will be charged are changing, institutions should be updating to disclose the new conditions under which the cardholder will incur the fee.
The need for a change notice
Under these circumstances, both Reg E and Truth in Savings require institutions to send a change notice to consumer cardholders. Institutions should probably opt for compliance under Reg E since the timing requirements are more favorable. Reg E requires a change notice to be delivered 21 days in advance of the change while Truth in Savings has a 30-day notice requirement. We recommend using a separate change notice to help ensure the regulation’s “clear and readily understandable” requirement is satisfied. In other words, a change notice in small print buried in the middle of unrelated information in a newsletter or periodic statement would likely not satisfy the standard.
Review of financial institution policy and processing
Note that institutions that absorb the ISA do not have to make any changes to the account opening disclosures. However, the cost of doing business will go up for these financial institutions if they continue to absorb the ISA after these changes go into effect. Now is a good time for these institutions to review their policy and weigh their options after determining how much the ISA is costing them each month.
If a financial institution decides to changes its policy with regards to whether – or how – it passes the ISA on to cardholders, it should check with its card processor to determine what options the processor offers for passing the ISA on to the cardholder. For example, some processors offer an option to always charge 1% regardless of a currency conversion and some might even provide other options to up-charge. Bear in mind, however, that once an institution changes its policy, it needs to be sure to update its account opening disclosures and send change notices in the manner discussed above.
Effective date
There is some uncertainty as to the effective date of this Visa rule change. On February 25, 2008, one of our customers sent us an official Visa Business Review dated June of 2007. That document clearly indicates an April 25th effective date. However, we have recently seen materials from several card processors, as well as an email from Visa support sent to one of our customers, now indicating an April 4th effective date for BASE I institutions and April 5 for BASE II institutions. Still other card processors have indicated an April 1st effective date. Wolters Kluwer Financial Services is not a member of Visa and as a result does not have direct access to the Visa rules. We recommend that financial institutions work directly with their card processor to determine the date their card processor is going to go live with the ISA changes. Financial institutions can then make plans based on that date. It may be that an institution will need to absorb the Visa ISA until the 21 day change notice can be satisfied. As always, we recommend involving your legal counsel and compliance personnel in making these decisions.
A note about Visa rules and Visa rule changes
Wolters Kluwer Financial Services is not a financial institution and thus does not receive notices or other information directly from Visa. We rely on our financial institution customers to provide us with information regarding Visa changes that impact disclosures and cardholder agreements. Financial institutions are encouraged to verify Visa rules and Visa rule changes directly with Visa and review communications from Visa with counsel and/or compliance personnel before taking any final action.
