CUs Project 35BP Loss Due To Durbin Rule

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ARLINGTON, Va. — Credit unions are projecting a negative effect on their bottom lines of 35 basis points due to the Durbin Amendment and resulting lost interchange income, according to NAFCU's most recent Economic & CU Issues Monitor.

Among the potential victims: free checking and rewards programs.

While credit unions of less than $10 billion in assets are exempt from the amendment's provisions on debit cards, the card networks are permitted to establish a single, uniform interchange rate for all institutions, regardless of size. As a result, NAFCU noted the rate the Federal Reserve approves may become the default rate for all debit card issuers. In response, NAFCU asked participants in its survey for what they are projecting for debit card interchange fees. Among the findings:

• Up to one-fifth of their credit union's non-interest income is made up by interchange income.

• Respondents predicted that the currently discussed price controls on debit card interchange fees will have an average negative effect on their bottom line of 35 basis points. As a result, three-fourths of the survey participants said that their credit union has reviewed or is currently reviewing its business plan to find other ways to cover fraud, data security, and other costs and to make up for the loss in debit interchange fees the Durbin Amendment would cause.

• While 98.3% said they are planning to maintain their debit card program for member relations, almost half (48.3%) indicated they are considering eliminating free checking accounts to make up for the losses from the Durbin Amendment.

• 45.8% said they are considering charging their members an annual or monthly fee for access to a debit card.

• Nearly half of responding credit unions (43.8 %) indicated that another consequence of the Durbin amendment could be the elimination or reduc-tion in rewards programs.

• 8.6% said they are currently considering reducing staff members.

• Finally, respondents indicated that, on average, 8.2% of their non-interest income came from credit card interchange fees in 2010. Over half (59.6%) estimated the potential loss from a price control for such fees, but less than one-third have already stress tested against such a potential loss.

While NAFCU said it received comments from some credit unions that they do not expect any impact on their institution, the association added that "many credit unions indicated that they fear merchants will be the only ones benefiting from the amendment, because there is no guarantee that merchants will pass the savings on to consumers."

NAFCU noted that survey respondents further commented that the currently discussed 12 cent fee may not be enough to cover operating costs of their debit card programs, forcing them to eliminate member services, charge new and/or higher fees and reduce dividends. Many also fear that there will not be a two-tiered system and that ultimately the consumer, the intended beneficiary, will pay more, NAFCU said.

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