LAS VEGAS-Credit unions in the U.S. were given a preview of what likely lies ahead in Congress when it comes to interchange, and from an Ausralian CU rep who ha had to deal with the issue for three eyars.
U.S. CUs have won a victory with a carve-out for financial institutions below $10 billion in assets. But that's being seen as something of a hollow victory, because "it would be great if the carve-out works, but we don't believe it will work," said Ryan Donovan, VP of legislative affairs for CUNA. "There is no incentive to do so, because merchants will be able to discount between card networks."
During the joint CUNA/World Council of Credit Unions 1 CU Conference here, Donovan was joined by CUNA SVP Mary Dunn, and Stan Hollen, president and CEO of CO-OP Financial Services. All three said the full effect of interchange legislation will take many months to be felt, but vowed to fight for credit unions' interests. "We will continue to try to make the carve-out work, but if it does not work, we will return to Congress to fix it or repeal it," promised Donovan.
The fact the interchange amendment directs the Fed to limit interchange fees to a "reasonable" level gives the Fed some "wiggle room," Dunn noted.
"From early on we could see this was not good legislation," said Hollen. "Interchange income for credit unions will be reduced by 25%, and that is a conservative estimate. It may be as much as 30% or 35%."
In response, Hollen said CUs should maximize interchange income by promoting the use of debit cards, increasing the promotion of accounts-including the use of rewards programs, reviewing the value of POS networks and using analytic tools.
Louise Petschler, CEO of Abacus-Australian Mutuals, said interchange reform is a "sore topic" Down Under, where rules similar to those in the U.S. went into effect three years ago.
"And it will be here, too, in the coming months and years," she warned. "It was billed as consumer-friendly reform, but now consumers pay more fees and the big banks and retailers profit. Consumers pay a surcharge, credit unions must pay fees and retailers can refuse some cards."
