WASHINGTON – The final debate on the landmark bank bill this week will leave credit unions having to oppose the bill even as Senate leaders are poised to add the long-sought increase in the member business loan cap.
“We’re not going to be able to support the bill if this is in it,” said NAFCU President Fred Becker, after the Senate added a provision that is expected to severely reduce credit unions’ revenues on debit card interchange.
The Senate plans to wrap up debate and vote on the bill this week, which will create oversight of too-big-to-fail banks, introduce a consumer financial protection agency and regulate financial derivatives for the first time.
The Senate move last Thursday night significantly raised the stakes on the bank bill that had offered limited impact on credit unions when the debate on it began three weeks ago.
The latest Senate move essentially will allow big national retailers to negotiate lower card fees directly with the biggest banks in the country, posing a huge competitive disadvantage for credit unions and community banks unless they cut their fees to match the big banks. The credit union lobby sees the provision as onerous even with an exemption for all institutions with less than $10 billion in assets. “I believe that [Sen.] Durbin was sincere in wanting to work with us,” said John Magill, chief lobbyist for CUNA, adding that even with the carve-out small players such as credit unions would be forced to match market rates offered by big banks. “I think a lot of these politicians really wanted to send a message to the big banks, but we got caught up in the stampede.”
As a result, credit unions and community banks have joined with big banks and the Visa and MasterCard card networks, which are controlled by banks and credit unions, to fight the interchange amendment. In addition, credit unions own billions of dollars worth of Visa and MasterCard shares, the only common stocks credit unions are allowed to own. Shares in the two card giants plunged Friday after the interchange vote, with Visa losing almost 10% and MasterCard losing almost 9%.
Pushing for the interchange amendments are the retailing lobby, which stands to save billions of dollars in saved costs.
For credit unions the legislation is the latest threat to their bottom lines, following recent bills aimed at cutting revenues on overdraft protection, credit card transactions and ATM fees. Industrywide fees for card interchange, both credit and debit cards, has grown to about $48 billion a year now, with about a tenth of it, some $4.8 billion, going to credit unions, according to Michael Moebs, president of credit union consultants Moeb$ Financial Services.
The interchange amendment, drafted by Illinois Sen. Richard Durbin, would do several things:
It would direct the Federal Reserve to ensure that fees on debit transactions (not credit card) are “reasonable and proportionate” to the processing costs incurred. The proposals also would bar Visa and MasterCard from penalizing retailers for offering discounts to customers for cash transactions, as the two card networks now do. Everybody expects this to result in a lowering of fees.
It would also allow retailers to offer discounts for customers to use competing card networks and for customers to pay by cash, check or debit card. They would allow retailers to choose to decline credit cards for small dollar purchases.
The vote on the Durbin amendment drew a solid majority of senators, 64, from both parties, making it very unlikely the measure will be removed from the bill – as is still possible – during a conference with leaders of the House, which has passed a bank bill without the interchange amendment in it.
“The likelihood of it getting pulled at this juncture is slim,” said NAFCU’s Becker, who said his lobbyists will continue to work with lawmakers to make the interchange provisions more palatable.
“We’ve got out work cut out for us with the conferees,” said CUNA’s Magill.
