Dark Clouds Hover Over CUs’ Interchange Bid

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WASHINGTON – Credit union lobbyists were undeterred last week after the congressional conference to set the final bank reform bill opened with key lawmakers pledging to retain the controversial provision that would establish federal price controls over debit card interchange.

“NAFCU continues to fight for the provision's removal,” said the group’s chief lobbyist Dan Berger, of remarks by House Financial Services Committee Chairman Barney Frank that Frank expects the interchange amendment to survive the final bill.

Frank, who is chairing the House-Senate conference, noted the wide margin by which the interchange amendment passed the Senate, on a bipartisan, 64-33 vote. “I think some modifications will be coming, but basically, it's one where there's pretty strong support for the underlying provision,” he said on the first day of the conference.

CUNA, which organized a fly-in of as many as 1,000 credit union executives last week to lobby against the amendment, said it will push forward with its opposition. “We always respect the Chairman's opinion, but we will continue to press for removal of the Senate amendment in the strongest possible way,” said John Magill, chief CUNA lobbyist, over the weekend.

Several senators also said last week they expect the interchange amendment to survive. Sen. Chris Dodd, the chairman of the Senate Banking Committee, cautioned against watering down the bill. “I don’t want to see this bill weakened, at all,” said Dodd.

“I think some form of the amendment will survive the final bill,” Sen. Thomas Carper, D-Del., told Credit Union Journal last week.

Meantime, Sen. Richard Durbin, who wrote the Senate’s interchange amendment, assailed CUNA and the Independent Community Bankers Association for spreading what he called untruths during a mass lobby on Capitol Hill last week. Sen. Durbin said in a letter to CUNA President Dan Mica and the banking lobbyists obtained by the Credit Union Journal the idea that Visa and MasterCard would unilaterally lower interchange fees on all credit unions and banks, even though the vast majority of their card issuers are exempted from his interchange provision “is absurd,” said Durbin.

“You further argue that under the Durbin provision, if Visa and  MasterCard did not reduce debit interchange rates for small banks and credit  unions, merchants would be able to discriminate against these small institutions  by refusing to honor small bank cards or offering discounts for use of big bank  cards. These assertions are untrue,” wrote the Senator. “As is the case today, under my amendment a merchant who accepts Visa debit cards from large banks would be
required to accept Visa debit cards from small banks and credit unions as well. They would also be prohibited from offering discounts for large bank cards and  not providing the same discount for small bank cards from the same network.”

“Visa and MasterCard can unilaterally reduce interchange fees on credit unions and banks now, and my amendment wouldn’t change that,” wrote Durbin. “It is this market domination that needs to change. Change is coming  to the interchange fee system.  This change will be good for consumers, good for  small businesses, good for taxpayers, and good for the American economy.  I have  worked hard to ensure that this change will benefit you.  I am sorry that you continue to stand with the big banks and the giants of the credit card industry  in opposing reasonable reform”

The interchange amendment has two main features. The first would have the Federal Reserve study interchange rates on debit card transactions performed by financial institutions over $10 billion to determine if they are “reasonable and proportional” to the cost of performing the transaction, and, if not, direct the big banks to roll back the fees charged. It exempts all credit unions and banks under $10 billion from this provision, setting up a two-tiered cards system.

Credit union representatives oppose this provision because they feel a two-tiered system is impracticable and would force credit unions to also lower their fees to keep their cards competitive with big banks that cut their fees.

The other part of the interchange amendment would bar MasterCard and Visa from prohibiting retailers from offering discounts for the use of cash in transactions and from prohibiting the encouragement of cards with lowers fees.

The conference is scheduled to recommence work Tuesday on the massive bank reform bill, now almost 2,000 pages. The bill would create a consumer financial protection agency, set regulations for financial derivatives and for Wall Street rating agencies, and develop a system for overseeing troubled too-big-to-fail financial institutions.

The conference of 28 members has 12 senators (seven Democrats and five Republicans) and 16 representatives (10 Democrats and 6 Republicans).


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