MasterCard Doubtful On Two-Tiered Interchange System

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PURCHASE, N.Y. – A top MasterCard official on Tuesday said the cards network is withholding any commitment to create a two-tiered system to apportion debit fees between big banks and small banks and credit unions, and expressed doubt whether a two-tiered system will be workable.

“We’re prepared, we’re doing the back-office work to prepare for it, but we are not making a decision on actually whether to implement it,” Chris McWilton, president of MasterCard’s U.S. Markets, said.

Visa has already committed to creating a two-tiered system to set fees for large banks and credit unions with more than $10 billion, for which last year’s Dodd-Frank Financial Reform Act will set maximum rates, and for those with less than $10 billion. But experts, including Federal Reserve Chairman Ben Bernanke, have expressed doubt whether such a system is feasible in the marketplace.

MasterCard’s McWilton agreed, saying, “We don’t believe at the end of the day that a two-tier [fee] structure is sustainable in the long term.”

Credit unions and banks are lobbying Congress to delay implementation of the debit fee limits, which would cap fees at about 12 cents per transaction, according to proposal issued for comment by the Fed in December. Credit unions, all but three of which are under $10 billion in size, say the fees they would charge would inevitably be affected because more card users would migrate to the cards with lower fees issued by the big banks. The 12 cents per transaction is far below the 33 cents credit union say an average debit transaction costs them to process.

But if Congress is going to act it will have to be soon because the Dodd-Frank bill gives the Fed until April 21 to enact a final rule and July 21 to implement it.

The stakes in the fight are huge – with an estimated $20 billion a year in debit fees being paid to credit unions and banks from merchants. For credit unions, the stakes are even higher than for banks, with credit unions earning $2.6 billion last year in debit interchange, more than half the industry’s $4.1 billion in next income, according to CUNA.


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