Settlements In Debit Card Lawsuit Likely To Mean Decreased Interchange Income

Register now

Credit unions likely will see a drop in interchange income as a result of settlements last week in lawsuits against VISA and MasterCard, and some members may run into problems using their VISA- and MasterCard-branded cards, according to two credit union economists.

The two major credit card players have inked separate settlements to lawsuits brought by a number of retailers, including Wal-Mart and Circuit City, that claimed MasterCard and VISA charged exorbitant fees to retailers for offline debit card transactions.

Both companies previously charged a fee of approximately 1.5% of the total transaction, even though some of the smaller networks charged much smaller fees for the same transactions. Retailers said VISA's and MasterCard's "honor all cards" policy forced them to use the more expensive networks.

MasterCard was the first to break, agreeing to pay retailers about $1 billion to settle the suit. It is expected that VISA's settlement, which came just days after MasterCard's announcement (and hours after VISA vowed it would see the lawsuit through to the end rather than settle), is similar in nature to that of MasterCard's, but terms of the settlements were not available.

What does this mean for credit unions?

"We know that interchange fees are a significant source of income for credit unions," said CUNA Economist Bill Hampel. "If this encourages a shift from offline to online debit, it will affect credit unions' income."

The average consumer probably doesn't really know there's any difference, he added.

"Members don't understand the difference between the two," Hampel suggested. "If many members were using online debit anyway, then the impact on credit unions won't be that much. But if this moves more transactions to online debit, then there will be a greater affect. It's not going to break the credit union or anything like that, but it's not insignificant."

There may also be an issue of convenience for members as merchants adapt to the changes being instituted by the settlement, noted NAFCU Economist Dr. Tun Wai. "We are in the process of talking to our members who have branded programs to see their take on it," he said. "It is possible that some consumers will not be able to use their VISA and MasterCard branded debit cards everywhere."

For reprint and licensing requests for this article, click here.