Debit Interchange Losses Quantified By CUs

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WASHINGTON – The Federal Reserve’s proposal to slash interchange fees on debit transactions by as much as 70% could devastate the finances of some credit unions, forcing them to institute fees on no-charge services such as checking, credit unions are telling the Fed.

Credit unions – the vast majority of which are exempt from the Fed’s proposal – are dominating the comment process, with almost two-thirds of the 232 comments posted by the Fed from credit unions. But the vast majority of the comments, more than 2,100, are form letters generated by sources such as CUNA that the Fed has declined to post.

Royal CU told the Fed if the proposal is enacted it would cut its interchange revenue by as much as 73%, or $3 million per year, representing about 75% of its net income. “I realize that there is an exemption for financials that are under $10 billion in assets,” wrote Randy Beck, executive vice president for risk management for the $1.2 billion Eau Claire, Wis., credit union, “but it remains unclear as to whether the networks will develop and support two different levels of interchange.”

SkyOne FCU of Palmdale, Calif., estimates the Fed’s proposal will cost it $402,000 per year, some five times its $84,000 in total net income for 2010. “We will find ourselves in a position of significant negative earnings if we don’t reverse this piece of the bill,” wrote Eileen Rivera, president of the $330 million credit union.

OMNI Community CU, of Battle Creek, Mich., estimated the interchange proposal will cost it $850,000 a year. “If we were to lose this income,” wrote Debi Southworth, credit manager at the $210 million credit union, “it would have detrimental effects on other areas of business to our members. We would most likely have to raise our lending rates, which are generally lower than other financial institutions. In addition, we would have to lower our deposit rates.”

Community Financial CU, in Broomfield, Colo., estimates the Fed’s proposal will lower its interchange revenue by $72 per demand account, forcing it to raise fees for each account by $6 a month. “This creates a perverse incentive to push our members back to cash transactions, which I would assume no one in Congress or at the Fed would support,” wrote Greg Hill, president of the $120 million credit union.

The deluge of credit union opposition has prompted NAFCU to begin lobbying Congress for repeal of the interchange amendment, which was part of last year’s Dodd-Frank Financial Reform Act. NAFCU began contacting leaders of the House and Senate on Friday to begin efforts to withdraw the amendment. The repeal bid has the support of the powerful Electronic Payments Coalition, a group consisting of CUNA and NAFCU, the American Bankers Association, Independent Community Bankers of America, Visa and MasterCard, which fought unsuccessfully against the interchange amendment last year.


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