The following post is a re-print from the National Association of Federal Credit Unions. NAFCU is a respected and influential trade association that exclusively represents the interests of federal credit unions before the federal government and the public. NAFCU provides its members with representation, information, education, and assistance to meet the challenges that cooperative financial institutions face in today’s economic environment. The association stands as a national forum for the federal credit union community where new ideas, issues, concerns and trends can be identified, discussed, resolved.
Dec. 21, 2010 – Concerns lodged by NAFCU over the negative impact on consumers, credit unions and other small institutions of the Federal Reserve Board’s debit interchange proposal continued to make news over the weekend.
ABC News ran a story online that pointed to retailers’ positive reviews of the rule, which would essentially result in a fee cap of 12 cents per debit card transaction. However, it also points to comments from NAFCU and other financial industry trades that this is an effective 85 percent cut in interchange fee income for debit card issuers, which “will negatively impact not just large card processors like Visa and MasterCard, but consumers as well.”
The debit interchange proposal is being issued under a requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The law requires the Fed to come up with a debit interchange fee that is “reasonable and proportional to the issuer’s cost.”
The law exempts institutions with less than $10 billion in assets from the Fed’s interchange fee limit – whatever that turns out to be – but NAFCU believes the market will eventually enforce that limit on all providers.
House Financial Services Chairman Barney Frank, D-Mass., one of the lawmakers for whom the reform package is named, said the Fed’s proposal comes up short. Frank expressed concern that whatever savings are achieved will not be passed on to the consumer.
“Unfortunately the evidence we’ve seen elsewhere is that consumers don’t get any benefit,” he was quoted saying in news reports.
Frank has also expressed concerns the limit will hurt small banks even though they are technically exempt from that provision of the law.
Frank has written the Fed urging that small institutions and consumers not be adversely affected by the Fed’s debit interchange rule. Fifteen senators took similar action in the days prior to that, and Sen. Claire McCaskill, D-Mo., who voted against including the interchange language in Dodd-Frank, followed up with her own letter on Friday.
McCaskill noted specific concerns that the instructions provided in the law explicitly bar the Fed from considering overhead costs in setting debit interchange fees, in effect preventing debit card issuers from recouping the full costs of offering cards to consumers.
“[T]here are other ways of addressing disputes over interchange fees,” she stated. “Potential solutions could emphasize transparency and consumer choice, rather than setting interchange rates directly.”
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Why be concerned now about liquidity when most credit unions are awash with funds resulting from a flight-to-safety fund inflows and loan portfolio outflows due to lack of loan demand?
