By Jon Matonis
American Banker
Thursday, May 23, 2013
http://www.americanbanker.com/bankthink/credit-unions-fear-collateral-damage-from-fatca-1059360-1.html
Last month, I warned
that the Foreign Account Tax Compliance Act, an attempt by the U.S. to
impose reporting burdens on other countries' banks, would produce blowback for domestic financial institutions. Credit unions, at least, are worried.
The powerful Credit Union National Association has thrown its support behind Senator Rand Paul's bill to repeal the anti-privacy provisions of this heavy-handed law. "We share your concern that FATCA, if left in place, will impose billions of dollars of compliance costs on U.S. credit unions and banks annually," Bill Cheney, CUNA's president and CEO, wrote
to Sen. Paul on May 8. "We are also concerned that FATCA and
FATCA-related intergovernmental agreements with foreign nations
undermine the constitutional privacy rights of U.S. credit union members
and bank customers."
Cheney went on to emphasize the fear of reciprocation by foreign governments for Washington's overreaching.
"CUNA
is also concerned that the European Union is considering adopting a
'European FATCA' which would regulate U.S. credit unions and banks in
the same manner that the United States' FATCA purports to regulate
credit unions and banks in the European Union," he wrote. "Unless
Congress repeals FATCA, we think that it is only a matter of time before
the extraterritorial diktats of a European FATCA and other
FATCA-inspired foreign laws become additional compliance burdens on U.S.
financial institutions." As the largest credit union advocacy
association in the United States, CUNA represents nearly 90% of America's 7,000 state and federally chartered credit unions and their 96 million members.
Sen. Paul has cited the destructive effects of the law and questioned its legitimacy as a tool to combat tax evasion, arguing
that "FATCA has had the practical effect of forcing [foreign financial
institutions] to relinquish any association with American customers, and
to avoid direct investment in the United States. Perhaps even more
troubling, the implementation of FATCA has allowed the Treasury
Department to make independent decisions with respect to the sovereignty
of foreign nations and the privacy of United States citizens."
CUNA's support for rolling back FATCA follows a move on March 27 by the World Council of Credit Unions,
which represents member-owned cooperative nonprofit lenders in 100
countries. Michael S. Edwards, the council's vice president and chief
counsel, called
for full repeal of the law, similarly citing the boomeranging costs of
FATCA from foreign institutions to domestic U.S. entities like credit
unions.
By comparison, the credit unions' banking brethren have been subdued in their resistance to FATCA. Texas and Florida banks have sued
to block a regulation requiring them to tell the IRS when they pay
interest to nonresident aliens, and the American Bankers Association has
urged the agency to spare certain products and balances from reporting requirements.
Aside from the credit unions, many in Washington are weighing in on the matter. In its 2014 budget, the administration buried
a request for Congress to authorize the Treasury Department to issue
unprecedented regulations requiring U.S. financial institutions to
report information on nonresident accounts for the IRS to share with
foreign governments. This plan may be dead on arrival.
According to the White House's "Analytical Perspectives to the Fiscal Year 2014 Budget,"
"the [budget] proposal would provide the Secretary of the Treasury with
authority to prescribe regulations that would require reporting of
information with respect to nonresident alien individuals, entities that
are not U.S. persons, and certain U.S. entities held in substantial
part by non-U.S. owners, including information regarding account
balances and payments made with respect to accounts held by such persons
and entities."
Without such authority, the Treasury Department
will be unable to follow up on its promises that have been a part of the
already-negotiated "intergovernmental agreements." The IGAs have been
instrumental in persuading foreign governments to enforce FATCA on
themselves in exchange for imposing FATCA-like mandates domestically in
the United States. But the agreements are an unauthorized creation of
the U.S. Treasury Department, according to McGill University law
professor Allison Christians, author of a recent Tax Notes International article, "The Dubious Legal Pedigree of IGAs (and Why It Matters)."
James
George Jatras of RepealFATCA.com calls Sen. Paul's bill "a major
game-changer." He also predicts Congress will fail to legislate the
necessary reciprocity authority to rescue the flawed statute. "With the
wind in Washington now blowing against FATCA, foreign governments are on
notice that Treasury's promises of 'reciprocity' are plain rubbish,"
according to Jatras.
Though Sen. Paul's bill aims to repeal only
certain anti-privacy provisions of the FATCA legislation and a companion
version is expected in the House, he has also been holding up Senate approval of all tax treaties since he was elected in 2010.
Jatras
encourages all international firms to get involved, adding that
"American and non-U.S. firms that stand to lose millions of dollars each
complying with FATCA need to help push the repeal bill through. FATCA
repeal needs to be part of any tax reform."
With a litany of
bipartisan reasons to oppose FATCA, ranging from privacy and sovereignty
to U.S. economic competitiveness, it is startling that the legislation
has advanced as far as it has. The situation speaks volumes about the
opaque process of continually "hiding" the specifics of putting laws
into practice in other legislation, resulting in the nearly seven-year
implementation timetable.
"What we've got now is a FinCEN on steroids without clear restrictions from Congress!"You can listen to the entire interview here:
http://letstalkbitcoin.tumblr.com/post/48738464442/lets-talk-bitcoin-is-a-show-for-users-new-and
Bradley is editor of FreeBanking.org and Director of the Center for Financial Privacy and Human Rights. He comes on at about the nine-minute mark, but the conversation before that leads into the discussion on FinCEN.
PaymentsSource
Friday, February 22, 2013
http://www.paymentssource.com/news/visa-mastercard-antitrust-settlement-is-anticompetitive-3013321-1.html
As part of last year's $7.9 billion preliminary settlement agreement in the class action against Visa and MasterCard, the card networks enacted a rule change allowing merchants to surcharge customers up to 4%. Effective Jan. 27, 2013, the optional surcharge is permitted on credit card transactions in an effort to defuse merchant allegations that the card brands were violating the Sherman Antitrust Act by unlawfully fixing interchange fees and rules.
The interchange fee structure of a four-party payment system is predicated on William F. Baxter's seminal piece from the 1983 Journal of Law and Economics. In this study, Baxter laid out the elements and cost structures for each of the participants in a four-party payment transaction – cardholder, issuer, acquirer, and merchant. Essentially stating that cost flowed principally to the issuer despite interest rates and annual card fees, Baxter economically justified the merchant (or acquiring) fee that would flow back to issuers now known as the IRF, issuer reimbursement fee.
Nearly 40% of Visa and MasterCard merchants are located in the 10 states that ban surcharging including California, New York, Florida, Texas and Massachusetts. Despite this and the proposed surcharging bans recently introduced in more than seven other state legislatures, it is easy to understand why some might see this settlement as a triumphant leveling of the competitive playing field.
Seemingly unaware of the historical reasons for creating the no-surcharge rule in the first place, Zywicki inverts the issue. Consumers are not the winners as the fee was always embedded into pricing and unfortunately this settlement does nothing to affirm free-market principles. Mandating no surcharges for the merchant participants of their early fledgling networks allowed the card brands to make them an all-or-nothing offer to entice novice cardholders. Had surcharging been permitted from the beginning, it would have been difficult to persuade cardholders, and therefore merchants, because consumers would be incentivized to stick with cash and check payments.
It's more likely that the card brands didn't want to permit merchants to offer discounts for cash transactions. Are they preventing card surcharges or are they preventing cash discounts? Is the glass half-full or is it half-empty? Maybe a “surcharge” is more palatable for consumers now if it is described as a discount for cash.
Sometime during the 1990s, when critical mass was reached and saturation occurred in the credit card payment networks, the tables were turned. Merchants no longer had to be persuaded to accept credit cards as a form of payment. At least in the U.S. and other developed payment markets, merchants realized the benefits of catering to consumer preference for cards and they didn't want to suffer by not offering that choice. The card brands’ acceptance strategy had come full circle, but the no-surcharging rule had not caught up.
With the all-or-nothing choice of "accept all payments at the same price or no card processing at all," once the "nothing" choice started to look relatively attractive, the card payment networks would be forced to open up. That's what alternative payment types such as Bitcoin start to permit. The card-branded networks would begin to see a disadvantage in prohibiting surcharging because all alternative forms of payment, including cash, must cross-subsidize the cards. This allows a non-card-accepting merchant to maintain a significant price advantage over a card-accepting competitor.
So market forces arguably would have eventually pushed Visa and MasterCard to permit surcharges. But the settlement, induced by class action litigation, is worse than superfluous. It is an unwarranted and unjustified encroachment into the practices of a private payment company. Just think of the lost capital and lost productivity of a seven-year, multi-attorney billing festival. Who do you think pays for that? Furthermore, this bit of central planning via the judicial system will remove the competitive advantage that alternative payment-only merchants like Bitcoin Store have now by forcibly removing the cross-subsidization that other merchants would have had to follow in accepting bitcoin or alternatives. If the natural market penalty for cross-subsidization is removed, then alternative payment-only merchants must begin to accept all payment types or lose business.
In a free market, payment networks would compete under their own network rules, not the government's or regulators’ rules. Sadly, the perceived pricing power referred to in the antitrust case stems less from alleged collusion among Visa and MasterCard’s member banks than from the multitude of state-granted privileges they enjoy that disadvantage new entrants (such as extraordinary bailouts for favored institutions, the notion of too-big-to-fail, generous deposit insurance, etc.).
The National Association of Convenience Stores, one of the plaintiffs in the case, rejected the proposed settlement for not going far enough, saying that the settlement failed "to introduce competition and transparency into a clearly broken market." While the merchant lobbyist’s reasons for believing this may not adhere to free market principles, it accidentally happens to be the correct legal and economic posture in this case because the settlement is anticompetitive. The answer, however, is not to coerce transparency and break the market even further.
Free market competition occurs at the macro payment system level – not within a given branded system by forcibly tinkering with the internal fees and surcharges and then declaring a win for consumers. No one is coerced into using a Visa or MasterCard product and merchants are not coerced into accepting plastic payments.
The problem of a payments oligopoly would solve itself because new market entrants would discover ways to bypass the entrenched networks entirely.