WASHINGTON-Credit unions are being urged to begin preparing now for the potential impacts from the loss of interchange revenue-including considering job cuts and significant repricing of services.
At least one CU is projecting it will see a 40% decrease in net income as the result of potential new rules. Moreover, representatives from Visa and MasterCard are sharing little confidence in the ability to make two-tiered payment system work.
Panelist Doug Fecher, CEO of the $2-billion Wright-Patt CU in Fairborn, Ohio, shared that 25% of his credit union's bottom line will go away if the new rules go through. "And I know of one CEO who says 23% of his staff will go away if the amendment is not changed."
Some Sobering Messages On Interchange
Fecher was among several panelists offering sobering messages during CUNA's 2011 Governmental Affairs Conference. Like other analysts, Fecher was not confident the Fed or Congress will reconsider the interchange amendment. H told CU Journal CEOs have two choices: either pass along the costs to members or reduce expenses. "In a credit union the only meaningful way to reduce expenses is to reduce employment. That is just a fact."
Dave Christenson, CEO of the $320-million Connexus CU in Wausau, Wis., told CU Journal following the breakout session that his CU will lose 40% of its net income from the new rules. "So we will have to recover that through jobs or charges back to members."
Paul Kundert, CEO of the $1.3-billion UW CU in Madison, Wis., who spoke with Credit Union Journal after listening to the panel and said a 12-cent hit to debit interchange would cost the credit union 86% of its 2012 forecasted income. "We would have to look at potentially every product, and look at cost structures in every way. We have been working on this for a while, but we remain hopeful Congress will get up to speed and reconsider the proposed rules."
But Fecher cautioned against "hanging your hat on the fact that somehow we will get this thing changed. That is a mistake. This is an uphill battle. I don't know that (a change) is going to happen."
That reality was shared by session panelists from MasterCard and Visa. Dan McDermott, head of U.S. government relations for Visa, stated that he does not "place stock" in the Fed making changes to rules affecting small issuers, and that retailers will likely gravitate to less expensive cards.
Tucker Foote of MasterCard Worldwide told delegates that he is even more pessimistic than McDermott about the Fed moving off its current position. "To think the Fed will read all the letters that are coming in and find religion-I don't buy it."
Rep. Ed Perlmuttter (D-CO), during a general session, cautioned CUs that not only do they face a battle in having their letters turned into actions, but a challenge from small merchants, who claim that current interchange rates are hurting their margins. "Realize there is another story being told here and that you have some real opposition."
Analyze Costs Of All Products Before Killing Free Checking
Fecher said its time for credit unions to analyze the costs of all their products, and not look simply at eliminating free checking. "You cannot begin to understand how to cover your costs until you know what your costs are." Fecher added that low- and middle-income members will be the ones taking the greatest hit when fees are added, since they often can't keep the necessary balances to avoid fees. "Many will go back to cash. That is tragic."
McDermott concluded CUs should share the message with Congress that low- and middle-income families will feel the greatest pain from the new rules, and that jobs may well be lost. "What do you think will be more important to legislators, Walmart making millions more or more people being out of work?" Fecher pointed out there is still time to explain to members how they and the CU could be affected. "Members get this and can be a big ally. We placed cards in our lobbies last summer that framed up what is happening and could be mailed to congressmen. We put out thousands and they were grabbed up immediately."
