Bank Bill Hurtling Down The Track, Merchants Claim Win On Interchange
WASHINGTON — Congressional leaders neared agreement on a consumer financial protection agency, new standards for the sale of mortgages on the secondary market and the controversial amendment directing the Federal Reserve to set fees on debit card transactions, as negotiations on the bank reform bill sped towards a conclusion yesterday.
The powerful merchants lobby was claiming victory over credit unions and banks as House leaders appear ready to agree to the Senate's amendment on interchange after it was softened to exempt government benefits programs. The credit union lobby vowed to walk away from and oppose the entire bill because of the interchange amendment, but at this point the train has left the station and the bill is speeding towards passage, as soon as this week.
CUNA President Dan Mica told House and Senate leaders yesterday the credit union lobby would oppose the final bill unless there are major changes in the interchange amendment. "we continue to have grave concerns regarding the effect that these provisions would have on credit unions and their members," said Mica.
The main provision of the amendment would direct the Fed to review interchange fees paid on debit cards-an estimated $20 billion a year-to determine if they are reasonable. Credit unions earn about $1.5 billion of these fees. The amendment would exempt all credit unions and banks under $10 billion from the Fed review. But credit union and bank lobbyists insist any rate set for the big banks would effectively apply to everyone, thereby rendering the exemption meaningless.
More important, they worry the debit provision will eventually be extended to get the Fed involved in setting fees for credit cards, a larger source of income, at least $30 billion a year. Sen. Richard Durbin, the Illinois Democrat pushing the interchange amendment, says he is trying to open this $50 billion-a-year market to competition and conceded he hops to extend his designs to the credit card market too.
The deal struck on interchange includes several compromises that would help credit unions. For example, it would direct the Fed when reviewing interchange fees to consider costs, like fraud, for debit programs. This was requested by the credit unions and banks.
It would also exempt from potential price controls government programs.
But it would also spare the card companies, at the expense of credit unions and banks. The compromise would require the Fed to regulate only the fees set by banks, not by the credit card networks such as Visa and MasterCard. The bulk of the fees are imposed by banks.
Credit union and banking lobbyists insist the Fed's intervention will mean lower income from this lucrative source. But it would be two years at least before the Fed would act and it is not clear how the Fed might direct fees be cut. In addition, the volume of debit transactions continue to surge at double-digit rates, meaning credit unions could make up for lower fees with higher volumes.
The credit union and bank lobby also says it is not clear-in fact, doubtful-merchants would pass on lower fees to consumers. "The Big Box retailers are not going to lower their prices (in exchange for lower fees)," said Fred Becker, president of NAFCU.
Members of the House-Senate conference will meet this morning to try to hammer out final language on provisions that would set new standards for the mortgage market-including a "skin-in-the-game" provision requiring originators to hold at least 5% of mortgages sold on the secondary market. A vote will also be taken on provisions set out the shape of a consumer financial protection agency.
Final language is still be worked out on provisions to regulate financial derivatives and set new rules for Wall Street rating agencies.