First Data 2011 Annual Report Download - page 12

issuers with assets of $10 billion or more are capped at the sum of $.21 per transaction and an ad valorem component of 5 basis points
to reflect a portion of the issuer's fraud losses plus, for qualifying issuers, an additional $.01 per transaction in debit interchange for
fraud prevention costs. In addition, the new regulations ban debit payment card networks from prohibiting an issuer from contracting
with any other payment card network that may process an electronic debit transaction involving an issuer's debit cards and prohibit
card issuers and payment networks from inhibiting the ability of merchants to direct the routing of debit card transactions over any
network that can process the transaction. On April 1, 2013, the ban on network exclusivity arrangements becomes effective for non-
reloadable prepaid card and healthcare prepaid issuers. Additionally, each debit card issuer must participate in 2 unaffiliated networks
beginning April 1, 2012 and each debit payment card network must comply with applicable exclusivity requirements by October 1,
2011. The Dodd-Frank Act provides two self-executing statutory provisions that became effective on July 22, 2010. The first
provision allows merchants to set minimum dollar amounts (not to exceed $10) for the acceptance of a credit card (while federal
governmental entities and institutions of higher education may set maximum amounts for the acceptance of credit cards). The second
provision allows merchants to provide discounts or incentives to entice consumers to pay with an alternative payment method, such as
cash, checks or debit cards. Finally, the Federal Reserve Board is required to develop regulations for additional oversight of certain
systemically important financial institutions and non-bank financial companies. At this point it is unclear whether the Company would
be subject to additional oversight. Within the Retail and Alliance Services segment the Company experienced some transitory benefit
due mostly to lower debit interchange rates, however, the overall impact on the Company is difficult to estimate as it will take some
time for the market to react and adjust to the new regulations.
Association and network rules. A number of the Company's subsidiaries are subject to payment network rules of MasterCard,
Visa and other associations. Several of the Company's subsidiaries in the International segment are members of MasterCard and/or
Visa in the countries where the subsidiaries do business and are subject to the rules of such associations. First Data Resources, LLC,
First Data Merchant Services Corporation, and STAR Network, along with a number of the Company's subsidiaries in the
International segment are registered with Visa and/or MasterCard as service providers for member institutions. In those situations
where the Company serves as a service provider to member institutions, the Company is not an issuer or an acquirer under Visa's and
MasterCard's rules. In addition, First Data Canada Merchant Solutions ULC is a member of Interac and subject to its rules and First
Data Global Services Limited is a subscriber to PULSE and is therefore subject to rules applicable to its members.
Various subsidiaries of the Company are also processor level members of numerous debit and electronic benefits transaction
("EBT") networks, such as Star Networks, Inc., Star Processing Inc., First Data Merchant Services Corporation, and Concord
Transaction Services, LLC, or are otherwise subject to various network rules in connection with processing services and other services
they provide to their customers and a number of the Company's subsidiaries are providing processing and other services related to
ATM deployment to customers. As such, the Company is subject to applicable card association, network and national scheme rules,
which could subject the Company to a variety of fines or penalties that may be levied by the card associations, banking associations or
networks for certain acts and/or omissions by the Company, its sponsorees, acquirer customers, processing customers and/or
merchants. The Company mitigates this risk by maintaining an extensive card association and network compliance function. The
Company is also subject to network operating rules promulgated by the National Automated Clearing House Association relating to
payment transactions processed by the Company using the Automated Clearing House Network and to various state and Federal laws
regarding such operations, including laws pertaining to EBT.
Cashcard Australia Limited ("Cashcard") is a member of the Australian Consumer Electronic Clearing System ("CECS"), which
is a debit payment system regulated by network operating rules established and administered by Australian Payments Clearing
Association Limited and which facilitates the clearing and settlement of ATM payments in Australia and a member of EFTPOS
Payments Australia Limited ("EPAL"), which is a debit payment system regulating Electronic Funds Transfer at Point of Sale
("EFTPOS") payments in Australia. Cashcard is also a member of the ATM Access Company Limited and the EFTPOS Access
Company Limited which respectively administers reciprocal access and interchange arrangements for ATMs and EFTPOS in
Australia. The network operating rules, ATM Access Code and EFTPOS Access Code impose a variety of sanctions, including
suspension or termination of membership and fines for non-compliance. Cashcard also operates its own network of members,
regulated by rules promulgated by Cashcard, which facilitates access to CECS and EPAL for Cashcard's member institutions. To
enable Cashcard to settle in CECS direct with banks and financial institutions, Cashcard maintains an Exchange Settlement Account
("ESA") which is supervised by the Reserve Bank of Australia through its delegate, the Australian Prudential Regulatory Authority
("APRA"), and which requires Cashcard to adhere to conditions imposed by APRA, such as maintaining a minimum balance in the
ESA.
The Company's subsidiary in Germany, TeleCash GmbH & Co. KG ("TeleCash"), is certified and regulated as a processor for
domestic German debit card transactions by the Deutsche Kreditwirtschaft ("DK"), the German banking association. Failure to comply
with the technical requirements set forth by the DK may result in suspension or termination of services.
Banking regulation. Because a number of the Company's subsidiary businesses, including card issuer processing, merchant
processing and STAR Network businesses as well as those subsidiaries engaged in the business of ATM deployment, provide data
processing services for financial institutions, they are subject to examination by the Federal Financial Institutions Examination
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