WASHINGTON — It's unlikely any piece of federal legislation has led to as much debate and predictions of significant hardships for credit unions as the Durbin Amendment to the Dodd-Frank bill.
The Durbin Amendment places a cap on interchange income for credit unions and other institutions. While some have not made any contingency plans, perhaps anticipating Congress will delay its implementation, others strongly suggest it's foolish not to plan now.
As Credit Union Journal has reported, those plans are being made in light of forecasts that see job cutbacks, interest rate reductions and new fees as the only ways to offset the Durbin Amendment's provisions. Indeed, one analysis sees the average $750-million CU losing 73% of its interchange revenues, which it would have to offset by cutting up to 18 employees or imposing new monthly fees on checking and on debit cards (
On this page four credit union CEOs offer their own thoughts on how best to prepare for the Durbin Amendment.
For CACU, Debit Program Will Be Pushed Into Red By Change
DETROIT — Small credit unions will have a harder time adjusting than big CUs if the new interchange rules take effect, observed Hank Hubbard, who said his credit union's debit program will be pushed well into the red if it loses 73% of its revenue.
"Our interchange income for debit last year was $150,000, and our expenses for the ATM and debit program, including fraud losses, were around $188,000,"said the CEO of Communicating Arts CU. "Taking away $100,000 would really hurt us."
Hubbard said the $30-million community development credit union would consider increasing its $29 NSF fee by a dollar or two, but would not consider cutting jobs, saying CACU already operates with a very small staff. "That is another reason small credit unions will have a difficult time with these new rules if they go through," added Hubbard. "Small credit unions are taxed with so many issues coming at them and have only a handful of people to deal with them."
FCCU Plans $5 A Mo. Fee If Rules Are Enacted
TAMPA — Florida Central Credit Union is considering adding a $5 monthly checking fee if the new interchange rules go through.
"We'd have to add the charge," said CEO Laida Garcia. "We generate about $1.2 million annually from interchange on debit and we stand to lose over $800,000."
The $312-million credit union offers a 3.5% rewards checking account that Garcia said would have to be evaluated, as well. "But we will think long and hard before we tamper with that."
While staff reduction is not being considered at FCCU, Garcia surmised it is something being talked about at credit unions with capital problems. "In most cases job cuts are the last thing you want to do. But if you are having capital issues you don't have much wiggle room."
For Some CUs, Tough Choices Are Overdue
WASHINGTON — Evan Clark believes the interchange rules are prompting credit unions to weigh tough decisions they should have already been making.
"You have to be relentless in cutting overhead," said the CEO of the $242-million Department of Commerce FCU, which has a 2.69% operating-expense-to-average-assets ratio. "We have tremendous over-capacity in our economy, particularly in the financial services industry. Banks are cutting back-there is an enormous amount of consolidation going on. If you are seeing that kind of consolidation, a lot of financial institutions are doing everything they can to be as efficient as possible. If you are not doing the same you will have issues going forward."
To address the potential impacts of the Durbin amendment, job cuts are not one of the options at DOCFCU, with the credit union paring back staff through attrition to 30 from 38 six years ago. Clark said the CU will likely look at increasing "punitive" fees, such as dormant account and NSF fees. "If you bounce a check you should be charged, and we have been very flexible with that."
Clark said DOFCU will also increase its lending program to increase revenue, including aggressively seeking refis.
Staff Cuts Unlikely, But New Fees On Checking Are At Navy-Army
CORPUS CHRISTI, Texas — Solutions proposed by Raddon Financial Group to cover potential interchange losses hit home at NavyArmy FCU.
CEO Wayne Vann said Bill Handel's figures, reported in the March 21 issue, closely reflect the steps his CU would have to take to make up for a 73% reduction in debit revenue. "We are a $1.1-billion credit union, and Raddon's numbers are not unrealistic."
Vann said NavyArmy would not consider reducing staff since the CU is lean. However, he said the credit union would probably add a checking account fee. "That's the source where you are losing revenue. You don't spread the cost to other members."
Vann said NavyArmy will wait to see what happens with interchange and how the market prices checking accounts before making a move. He noted that adding a debit card fee is possible, but not likely since that would prompt debit users to go back to cash or checks.
