Merchants Claim Win On Interchange

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WASHINGTON-In a move more symbolic than practical, the credit union lobby pulled its support from the bank reform bill last week after congressional leaders agreed to leave in it the interchange amendment that will allow the Federal Reserve to set fees on debit card transactions.

CUNA President Dan Mica, who had marshaled a massive fly-in of credit union executives the previous week, called on executives and volunteers to contact their members of Congress and urge a "no" vote on the final bill. Mica also notified lawmakers of the opposition of the credit union movement to the final bank bill, which is headed towards final passage with or without their support.

"The debit interchange provision would not only adversely affect how credit unions provide access to members' accounts, but also it would almost certainly increase costs to credit union members," he wrote in a letter to all members of the House and Senate last week.

The agreement on the interchange amendment came after its chief sponsor, Sen. Richard Durbin, the Illinois Democrat, agreed to an additional carve-out from the price-setting provisions for government benefits programs, most of which are converting their payments to debit cards from checks or other payment methods.

The latest carve-out came in addition to one for credit unions and banks under $10 billion, which Sen. Durbin had offered especially to please the credit union and banking lobby. But the credit unions and banks, working together this time, insist that the carve-out will be meaningless because any fee rate set by the Fed for large banks will become the de facto rate for all debit transactions, or else those card issuers under $10 billion will be left at a competitive disadvantage because their rates will be higher than the Fed-directed rates for big banks.

"In its current form, this legislation would still put credit unions at a severe disadvantage compared to large credit card issuers," said Fred Becker, president of NAFCU, which also pulled its support form the bank bill.

Still, credit union lobbyists were working last week even after the participants in the House-Senate conference reconciling the two different versions of the massive bill-now almost 2,000 pages-agreed to the interchange amendment, in an effort to minimize the impact.

The lobbyists were hoping to include language in the bill that would allow the Fed to consider a broad array of costs in setting the pricing for interchange, like fraud. They were also hoping to toughen anti-discrimination language in the amendment that would prevent retailers from discriminating against credit union and bank cards that have higher interchange fees.

The congressional action in favor of the interchange amendment came despite the biggest lobbying effort waged by credit unions since the 1998 Campaign for Consumer choice, which culminated in passage of HR 1151, the CU Membership Access Act, and provides somewhat of a book-end for Mica's CUNA career, which began with the earlier campaign and is scheduled to end in the coming months.

It also makes for strange bedfellows, with the bankers, who fought against HR 1151, partnered with the credit unions against the interchange amendment.

But those two traditional enemies are up against a foe at least as powerful, the nation's retailers, who want more competition and transparency introduced into the $62 billion-a-year market for card interchange that is currently dominated by Visa and MasterCard. The two card companies, which ostensibly serve thousands of credit unions and banks, are dominated by a handful of the largest banks, including JP Morgan Chase, Wells Fargo, HSBC, Citigroup and Bank of America.

A Strange Hue

The interchange fight, however, took on a strange hue, with the credit unions and small banks taking the public stance and the largest banks, those that will be most affected, using the specter of damage to small institutions to carry the debate. The retailers sued the same tactic, portraying the fight as mom-and-pop convenience stores against the big banks, even though big retailers, such as Wal-Mart, which is projected to save hundreds of millions of dollars a year on interchange fees, having backed the legislation.

Congressional leaders were working last week to hammer out final details on other provisions of the bank bill, including creation of a consumer financial protection agency, regulation of financial derivatives and new standards for Wall Street rating agencies. Once they do, the bill will be passed back to the full House and Senate, which are expected to vote final passage as soon as this week.

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