WASHINGTON – Officials with Visa and MasterCard were telling their credit union and bank issuers this week that a two-tiered system that would be required by the proposed interchange provisions in the pending bank reform bill will be costly and difficult to implement.
Among the matters that would have to be dealt with by the provision, which would delineate between issuers under $10 billion and big issuers, is how to distinguish between the transactions, officials of the two card networks said during conference calls with credit unions this week. In fact, many smaller issuers, including most credit unions, share Bank Identification Numbers, or BINs which facilitates their processing through groups, such as PSCU Financial Services or Card Services for CUs. Visa had conference calls this week with credit union members of each organization.
“Visa told us they do not have the programming to determine the two (asset sizes) tracks,” said John Blum, vice president for operations for Chartway FCU, who testified on the issue before Congress recently. “Now Visa will have to track it.”
The distinction between transactions conducted by the large and smaller issuers is one of several costs to implement the interchange provisions that would eventually be passed down from the card networks to their issuers, said Blum, whose Virginia Beach credit union earned about $2.4 million from credit and debit card interchange last year.
Under the provisions, included in the version of the bank bill passed by the Senate, the Federal Reserve will review interchange fees charged by issuers over $10 billion in debit transactions to determine if they are fair considering the costs of the transactions, and direct that the fees be rolled back if they are excessive. Issuers under $10 billion – which includes all but three credit unions – would be exempt from this provision.
The interchange provision would also allow retailers to offer shoppers a discount for using cash instead of plastic, and to encourage the use of cards with lower fees, both practices which are prohibited by the two cards networks.
Credit unions hope to convince congressional leaders to either amend or scrap the interchange provisions when representatives from the House and Senate meet starting next week to reconcile their different versions of the bank bill.
But Lyle Beckwith, chief lobbyist for the National Association of Convenience Stores, which has been lobbying for the interchange provisions, questioned the assertion by Visa and MasterCard on the difficulty of creating a two-tiered system. “They already have 387 different pricing categories that they keep track of,” he told the Credit Union Journal yesterday.
Representatives with Visa and MasterCard did not return phone calls seeking comment yesterday.
Beckwith, whose group is one of the major participants in the Merchants Payments Coalition, also disputed claims by credit unions that the provisions will hurt them. “That’s what the exemption is for,” he said. He said the language in the exemption will prevent retailers from discriminating against credit unions, community banks and other smaller issuers.
He also said proposals by the card issuers to require that any reduction in fees paid to issuers be paid back to consumers are unrealistic and would be impossible to track.
Credit union officials are worried too that the provision inserting the Fed into pricing for debit interchange will be extended to credit cards as well. Frank Pollak, president of Pentagon FCU, one of the three credit unions over the $10 billion threshold, said he not so concerned with the loss of debit interchange, which he put at $2.5 million last year, but at the potential for expanding the Fed’s pricing to credit cards, which provided more than ten times as much revenue for the $18 billion credit union last year. If the current provision cuts into Pentagon’s revenue, “we’ll make it up some where else,” said Pollack. “But if it gets expanded to credit that’s a different story.”
