WASHINGTON – The House Judiciary Committee this week is scheduled to debate a bill aimed at reigning in the rising interchange fees charged consumers on each electronic transaction – which are a substantial revenue source for many credit unions.
The congressional hearing comes as another major source of credit union revenue, overdraft protection fees, also is coming under fire. Non-interest income sources such as these have become increasingly important for credit unions as margins on loans have narrowed in recent years.
CUNA is lobbying heavily against the interchange bid, urging its credit unions to work to dissuade their congressional representatives from co-sponsoring a bill that would allow large retailers to negotiate their own interchange fees with the major cards companies.
The fees, an estimated $36 billion paid by consumers last year, are split between the credit card companies, the consumers’ credit union or bank, and the merchant acquiring bank. The fees are set by MasterCard and Visa, which control an estimated 80% of the electronic transactions market in the U.S.
The largest banks, which are the largest recipients of interchange fees, also control MasterCard and Visa.
The bill would allow the biggest merchants, such as Wal-Mart, to negotiate their own interchange fees with the cards companies. Any agreement would have to be approved by a special panel of the Federal Trade Commission.
“This legislation is intended to give merchants a seat at the table,” said Congressman John Conyers, the Michigan Democrat who drafted the bill. “It is not an attempt at regulating the industry and does not mandate any particular outcome.”
CUNA and NAFU have joined with the American Bankers Association, the Independent Community Bankers Association and the Financial Services Roundtable, the lobby for the largest banks, to stop the interchange bill. MasterCard and Visa also are part of the group, known as the Electronic Payments Coalition.
NAFCU President Fred Becker said it opposes the interchange bill and believes the current system of having the market set the fees is preferable. In a recent letter to Conyers, Becker said a loss of interchange revenue could be dire for some credit unions, forcing some small credit unions to merge. He said small institutions such as credit unions would be at the mercy of a system where large institutions and retailers set the fees.
