Wait-And-See Is Not A Good Strategy, Trade Groups Insist
ARLINGTON, Va.-As both CUNA and NAFCU now focus lobbying efforts on impacting the final Fed rule on debit interchange, NAFCU President Fred Becker urged credit unions to have plans firmly in place to make up for the potential loss in revenue.
"I don't buy for a minute that you can sit and wait for the Fed to come out with its rule," Becker told Credit Union Journal. "That's like seeing a tornado coming at you and just standing in place."
Credit unions should be taking their new revenue-generating/cost-cutting plans and testing them against even a worse-case scenario, said Becker. "You start with various alternatives, and the first should be a 12-cent cap and the two-tiered system not working. It's no different than shocking your system for an increase in interest rates."
Meanwhile, NAFCU is focusing lobbying efforts on President Obama and Fed Chairman Ben Bernanke, writing both letters. The correspondences emphasized making sure the two-tiered system works and to include more costs in interchange cap calculations, such as fraud, Becker explained.
Through the leagues, CUNA is urging credit unions to contact their senators-particularly those 54 who voted in favor of the Tester-Corker bill-and ask them to contact the Fed saying, "Take note of the vote in the Senate. A clear majority voted to stop and study the impact of rules on smaller financials," said Spokesperson Pat Keefe.
Essentially, CUNA is asking credit unions to focus senators on making sure the final Fed rule does not harm small issuers, and outlined specific points for CUs to share, such as requiring the card networks to report to the Fed board that they have developed a two-tiered system that will provide higher fee income for small issuers, and that the Fed board should require ongoing reporting from the networks on fees to small issuers to ensure the two-tiered system remains effective.
Becker surmised that the Fed will release its final rule this week or early next, basing that call on the fact the Fed has stated it will announce and vote on the rule in a public forum. The Durbin bill requires cuts be implemented by July 21. "As I understand it, the Fed will have a public meeting to vote on the rule. That requires, I believe, seven days' notice. So if the Fed does as it has said, the earliest the rule could come out is the 21st-that is if they announce the meeting today," Becker told the Journal last week.
Once the rule is issued, Keefe said CUNA "will pursue additional litigation, if necessary, depending on the provisions of the rule for credit unions."
Becker reported that NAFCU is supporting the suit by Minnesota's Twin Cities Financial Bank to force the Fed to halt or alter a final rule, having filed an amicus brief. "Additionally, there is the possibility of a suit once the rule comes out under the Administrative Procedure Act depending on how the final rule reads and what the Fed does," noted Becker.
The NAFCU president saw little advantage in credit unions attempting to lobby the Fed directly. "If credit unions have something substantive to say, suggested changes for example, I would suggest they lobby the Fed. But writing to the Fed in form-letter fashion at this juncture would not be of any benefit. The regulatory process is not a referendum."
Greg Smith, CEO of the $3.8-billion Pennsylvania State Employees CU in Harrisburg, Penn., shared much different lobbying concerns. He hopes the focus on debit interchange is not taking the industry's eyes off the potential for CU taxation. "As difficult as it is to imagine, the U.S. deficit situation is so severe that PSECU believes that credit union taxation is an increasingly greater possibility. I would hope that our national leaders will get moving on this issue now so that we don't find ourselves playing defense as we did throughout the interchange debate. The fact is that we were beaten badly by the retailers who got ahead of financial institutions-not just credit unions but banks too. The credit union movement can't afford to take another hit in the form of taxation, so the time to start driving home our message is now, not after the bills to tax us have already been written."