VIENNA, Va. – When calculating the biggest losers of the Durbin amendment’s cap on debit fee count among them Navy FCU, the nation’s largest credit union and seventh-largest issuer of Visa debit cards.
“We don’t believe [the Fed’s proposal] is either reasonable or proportional,” said David Willis, Navy Federal’s senior vice president for debit card and funds services, of the proposal to cap fees at seven or 12 cents per transaction. “In fact, at those rates, we are going to lose money on every debit transaction.”
“At 12 cents or seven cents, you’re way below covering your costs,” Willis told Credit Union Journal last week.
The stakes are enormous for the $45 billion credit union, which earned an estimated $170 million on 420 million transactions conducted by its 1.5 million Visa debit card holders last year.
The Navy Federal executive was puzzled by the Fed’s approach in writing the rule, which was issued for comment in December. For one thing, he took issue about which costs could be included in setting the caps. For another, he pointed to the language in the Durbin amendment that requires the Fed to ensure that fees are “reasonable and proportional.”
“The Fed has a lot more leeway to interpret this rule than they believe that they do,” said Willis. “All they need to do is consider whether fees are reasonable and proportional... There is nothing in the law that says there needs to be a hard cap.”
Because it has more than $10 billion in assets, Navy Federal is one of only three credit unions which the caps will directly apply to (Pentagon FCU and North Carolina SECU are the others). All other credit unions are expressly exempt from the caps, even though most observers expect the caps on large issuers such as Navy Federal likewise will drag down the market rate for debit.
Beyond those calculations, there is one part of the equation that is incalculable, according to Willis, and that is who will benefit from the big cuts in debit fees that ultimately will go from banks and credit unions into merchants’ pockets. “Is the merchant going to give the money back to consumers?” he asked.
But the biggest calculation for the credit union giant is what effects the lost revenue will have on its huge membership of 3.5 million. “Every dollar earned by their credit union is used to benefit them in one way or another; either in lower rates on their loans or higher rates on their savings on free checking,” said Willis. “And any dollar left over goes towards safety and soundness, this is our reserves. And any dollars that come out of their credit union won’t be there for use by their credit union.”
Navy Federal, which likes to keep a low profile because of its close ties to the Department of Defense, is working behind the scenes with the Electronic Payments Coalition, NAFCU and CUNA, even though it no longer is a member of CUNA. The credit union giant brief flexed its muscle last year when it asked its vast membership to contact Congress as the Durbin amendment was attached to the Wall Street reform bill. That possibility still exists as time is running down on the July 21 deadline for implementation of a final rule by the Fed. At this point, the best chance is to convince Congress to vote to delay the rule for as long as two years, allowing for a much more comprehensive study by the Fed, as pending Senate legislation would do.
“We would like them to repeal it,” said Willis, “but realistically, we would like them to stop, study and come up with some different results.”
