1. Visa Confidential1 Card Regulation; Pricing and Security Paul Russinoff State Government Relations

2. Washington, D.C. Climate Visa Confidential2 Interchange Fees, Defined AcquirersIssuers Interchange represents a transfer price between the Issuing and Acquiring Members involved in a transaction  Acquirers pay Issuers for payment transactions  Issuers pay Acquirers for ATM transactions  Interchange flows “in reverse” for credits and chargebacks

3. Washington, D.C. Climate Visa Confidential3 Cardholder Merchant Issuer Acquirer Acquirer Submits Transaction to Visa - $100 Visa Pays Acquirer $98.25 Issuer Pays Visa $98.25 ($100 - $1.75 IRF) Visa Submits Transaction to Issuer - $100 The Flow of Interchange Visa Merchant Submits $100 Transaction Merchant Paid $97.80 ($100 – $2.20 Discount) Issuer Bills Cardholder $1001 2 3 4 5 6 7 8 Cardholder Pays Issuer

4. Washington, D.C. Climate Visa Confidential4 Why are we here today? Member financial institutions are increasingly invested in interchange as a means of driving revenue from base of accounts Merchants are increasingly sensitive to interchange costs, both in rate and in total amount, as consumers increase their use of cards for payment Consumers may not be aware of interchange, but have been the primary beneficiaries of improved product features and functionality funded by interchange Media, analysts and regulators are engaged

5. Washington, D.C. Climate Visa Confidential5 2007 State “Interchange” Legisaltion Type of Bill (28 Bills)States – Bill Number (14 States) State Sales Tax Exemption/Prohibition  FL HB 14, SB 1724  IN SB 500  KS SB 348  NE LB 174  NY AB 1020  WA SB 5884, 5885 Surcharge  TX HB 1236 Rate Cap  MT LC 1580  TN HB 1019, SB 850  WA SB 5065 Disclosure  AL 788  KS HB 350  KY HB 250  NE LB 174  NY A 501, A 3956, A 7775, SB 5035  TX SB 1322 Miscellaneous  MA, HD 2572, HD 2995  TN SJR 361  WA SJM 8020 Resolutions  WA SJM 8020  TN SJR 361  NCSL (ongoing)

6. Washington, D.C. Climate Visa Confidential6 State Sales Tax Prohibition FL, IN, KS, NE, NY, NV, WA Prohibiting “merchant discount” or “interchange fees” on the state sales and use tax portions of a transaction. Allows merchants to deduct “merchant discount” fees from sales and use taxes owed the state.

7. Washington, D.C. Climate Visa Confidential7 Surcharge Currently 10 States Prohibit Surcharging. CA, CO, CONN, FL, KS, ME, MA, NY, OK, TX TX surcharge bill modified statute to allow a surcharge on transactions under 10 dollars. HI surcharge bill allowed surcharges with disclosure.

8. Washington, D.C. Climate Visa Confidential8 Rate Cap WA capped “interchange” at 1.5% of the overall transaction. TN capped merchant discount at.75 % MT probable merchant discount rate cap for small businesses.

9. Washington, D.C. Climate Visa Confidential9 Disclosure AL, KS, KY, NE, NY, TX Require access to complete rules of card association/issuer and actual notification of any and every rule change. Complete schedule of interchange credit and debit card rates and any other fees. Failure to provide rules, or rule change results in no liability for a “charge back” and AG and civil suit against acquiring bank. NY - Disclose “interchange” rates to NY bank regulator. KY – Disclose “interchange” rates to card recipients (among other things), pertains to issuing banks. TX, must allow a merchant to offer a cash discount.

10. Washington, D.C. Climate Visa Confidential10 Universal Default Consumer is charged the default rate by a card issuer when consumer is in default on a separate account. Specific to the card industry with adjustable interest rates reflecting risk based pricing. Federal “creditor practices” hearings. 2007 Federal Legislation H 1461 (Udall), H 2146 (Ellison), S 1309 (Tester) 2007 State Legislation: CA (SB 968); FL (HB 421, SB 748); IL (HB 292, SB 171); NV, (AB 215, SB 302); NY, (A 5325, A 7291, S 2969); TN (HB 1483), VA (SB 104) NV Law and NY Veto

11. Washington, D.C. Climate Visa Confidential11 Merchant Focused Data Security Payment Card Industry (PCI) standards Minnesota – Prohibit retention of full magnetic stripe data and pin numbers 48 hours after authorization Private right of action for financial institutions, sue for cost of breach notice, card replacement and associated fraud loss. California – Amends current California data breach notice law, contains Gramm- Leach-Bliley Act exemption. Prohibit retention of magnetic stripe data, CVV numbers or pin numbers, or communicating these without encryption or redaction. New security breach reporting requirements to include the name of the breached entity. Financial institution can sue for cost of breach notice and card replacement.

12. Washington, D.C. Climate Visa Confidential12 Merchant Focused Data Security Oregon – Data breach notification and security freeze law also includes detailed “security program” requirements which track Federal GLB requirements. Technical requirements of program to address key controls, systems, networks and software designs. Policies for employees access Data destruction System tests Flexible for small business requires policy “appropriate to size and nature of the business and sensitivity of the data collected” (like GLB).