WASHINGTON-The massive bank reform bill that had little in it for credit unions when the Senate debate began more than three weeks ago ended up touching numerous areas of credit unions operation and could cause a significant dent in the lucrative interchange fees earned from debit card transactions.
That's because the Senate voted last week to add several provisions to the bill aimed at lowering interchange fees charged by big banks, which is expected to force credit unions and community banks to follow suit.
The Senate is expected to pass the bill, which would create a consumer financial protection agency; introduce an oversight scheme for too-big-to-fail banks; and set up a regulatory framework for financial derivatives for the first time.
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. Industry-wide 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 $4.8 billion, going to credit unions, according to Michael Moebs, president of Moeb$ Financial Services.
The interchange amendment 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 proposal would also 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 also allow retailers to choose to decline credit cards for small dollar purchases.
NAFCU President Fred Becker said they will work to ameliorate the affects of the interchange provisions when the bill moves to a conference to reconcile the Senate version with that passed earlier this year by the House, which does not include the interchange language.
