Carved Out And Carved Up, CUs Victims Of Their Own Device

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WASHINGTON – In urging Congress to delete the interchange amendment from the pending bank reform bill credit union executives were put in an unusual position of arguing that an exemption – a so-called carve-out – from the amendment that they have sought in other bills is unworkable and impracticable.

“The carve-out provision really doesn’t work,” said Charles Emmer, president of Ent FCU, of the language that would exempt credit unions and banks under $10 billion from a Federal Reserve review of debit card interchange fees. The main problem with the carve-out, he said, is that it could lead to a two-tiered system of pricing for transactions processed by big banks and for credit unions and smaller banks, potentially leaving credit union cards at a competitive disadvantage.

Meantime, the conference between House and Senate leaders to reconcile the two different versions of the bank bill got under way yesterday, with political jockeying taking place. “I don’t want to see this bill weakened in any way,” stated Sen. Chris Dodd, the chairman of the Senate Banking Committee who ushered the bill through the Senate with the interchange amendment in it.

In a positive sign for credit unions, two members of the conference, Reps. Maxine Waters, D-Calif., and Gregory Meeks, D-N.Y., urged the removal of the interchange amendment from the bank bill.

The origination of the latest credit union carve-out is hard to determine. In recent years credit unions have sought carve-outs from a variety of bills, including the consumer financial protection agency, mortgage cramdowns, student loan subsidies, overdraft protection and data security, all the while arguing to an agreeable Congress that they are not the abusive parties that the bills target.

One credit union executive suggested that a credit union carve-out from the interchange amendment was first suggested during debate over a House bill that would have facilitated the bilateral negotiation of interchange fees between big retailers and big banks, prompting the latest sponsor of the carve-out language, Illinois Sen. Richard Durbin to propose it for the current bill.

The credit union lobbyists deny any suggestion to Durbin of a carve-out in the latest provision. “Not true,” said John Magill, chief lobbyist for CUNA, insisting that CUNA has never proposed a carve-out from the latest amendment. “Honestly, what I think Senator Durbin and his people were trying to do was to help us, but this does not help us.”

Fred Becker, president of NAFCU, which has promoted credit union carve-outs in previous bills, also insisted the latest exemption was not his group’s idea.

“I think the carve-out probably confused some senators,” said Stan Hollen, president of CO-OP Financial Services, who traveled to Capitol Hill this week to lobby against the interchange provision.

Hollen, whose company processes some 2 billion Visa and MasterCard debit transactions for 1,300 credit unions, insists that imposition of the carve-out will not be beneficial to credit unions, but harmful. “The lowest price is going to set the market price,” said Hollen, asserting that credit unions would have no choice but to match the lower fees the Fed may order for big banks. “Small institutions do not have the ability to compete with large institutions.”

Jeff Russell, executive vice president of The Members Group, a Des Moines-based processor for 200 credit unions, suggested the carve-out is not practical and will be difficult to institute. “While MasterCard and Visa have to balance the needs of the marketplace, nothing in the bill would compel them to operate a two-tiered system,” meaning that lower fees charged by big banks could become the industry norm,” said Russell, who was also in Washington to lobby Congress this week.

“This is well-intentioned,” said Russell, “but from a practicable matter it’s not implementable, from a market standpoint.”

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