WASHINGTON – A low-stakes debate for credit unions over the bank reform bill turned high stakes yesterday as senators voted to add several amendments to the bill aimed at opening the market for card interchange – so-called swipe fees – to more competition.
The credit union and banking lobbies were taken by surprise when a campaign to simply allow big retailers to negotiate lower fees with MasterCard and Visa expanded a proposal that would enable retailers to offer all kinds of price-cutting in a market that provides some $48 billion a year to credit unions and banks – about $4 billion for credit unions.
“The important thing is interchange, it means too much to credit unions at large,” said John Magill, chief lobbyist for CUNA, of the growing stakes in the bank bill that offered little for credit unions until this week.
The stakes are so great, said Magill, that CUNA will pull its support from the bank bill even if it includes the much-sought increase in the member business loan cap – if the interchange amendments are added to the legislation.
The proposals, introduced by Illinois Sen. Richard Durbin, would direct the Federal Reserve to ensure that swipe fees on debit transactions (not credit card) are “reasonable and proportionate” to the processing costs incurred. The proposals would also bar Visa and MasterCard from penalizing retailers for offering discounts to customers for cash transactions, as the two card networks now do.
The proposals would also allow retailers to offer discounts for customers to use competing card networks and for customers to pay by cash, check or debit card. They would also allow retailers to choose to decline credit cards for small dollar purchases.
After last night's vote NAFCU vowed to continue fighting the interchange proposals. “NAFCU remains opposed to any proposal establishing a mechanism for federal price caps on interchange fees or creating a model that results in credit unions being placed at a competitive disadvantage with big banks,” said NAFCU President Fred Becker. “The Durbin amendment, while allowing for a $10 billion exemption for smaller institutions, could still put credit unions at a disadvantage compared to large credit card issuers."
The interchange fight pits two of the most powerful Washington lobbies against each other that often partner on legislation and other issues. On one side are retailers who believe that the introduction into the market that is more than 80% controlled by Visa and MasterCard will result in lower swipe fees. On the other side are card issuers, banks and credit unions, and Visa and MasterCard – both of which are controlled by the banks and credit unions – who have seen their fees almost triple over the past decade as rapidly growing numbers of transactions are being done electronically.
CUNA, NAFCU and the banks had mobilized their representatives all over the country yesterday to oppose the interchange proposals. The groups soundly rejected a compromise offered by Sen. Durbin which would exempt all credit unions and banks under $10 billion from the interchange amendments. CUNA’s Magill said that would have unintended consequences for smaller card issuers by forcing down fees at large banks and making the cards of the smaller institutions less attractive. It could also invite bilateral agreements between big retailers and big card issuers, cutting credit unions and community banks out of the market, said Magill.
NAFCU's Becker told Senators last night the Durbin proposals will not just have an impact on small merchants and big banks, “it will also allow giant retailers and big box stores to line their own pockets at the expense of small banks and credit unions.”
“Even if institutions under $10 billion in assets are ‘exempted,’ merchants will discriminate against or refuse credit union cards in favor of price-controlled large institution products, which will be more profitable, and there is nothing in the bill to prevent this,” said Becker in a message to all 100 Senators. “The amendment will change the current status quo in which your credit union card is viewed no differently than a card from a large bank, and consumers will increasingly abandon the use of their cards from smaller institutions.”
