FED: DEBIT FEE CUTS DIDN'T
IMPACT MOST CUS, SMALL BANKS
WASHINGTON-Implementation of the Durbin Amendment's cuts in debit interchange fees cost the biggest CUs and banks billions of dollars in lost revenues but had little impact on the vast majority of CUs and banks, according to a new survey by the Federal Reserve.
Average fees per transaction received by the biggest banks and three CUs-Navy FCU, Pentagon FCU and North Carolina SECU-fell 45% for the fourth quarter to 23 cents from 43 cents two years before, the Fed reported. But average fees for every other card issuer remained the same at 43 cents.
The CU lobby, which poured millions of dollars into efforts to defeat the debit caps, downplayed the Fed's finding. "We feel it would be a mistake to read too much into the debit interchange survey," said CUNA CEO Bill Cheney. "The Fed's survey suggests smaller issuers, at least in the first few months after the rule took effect, saw only modest changes in interchange rates, and that is consistent with what we have heard in our conversations with a number of credit unions. But the jury is still out"
Credit unions continue to be concerned that market forces will ultimately drive down the fees that the exemption for smaller institutions is intended to protect, said Cheney.
"While the numbers remained relatively constant," said NAFCU President Fred Becker, "the dip in interchange revenue in the 4th quarter confirms our concerns that the uncapped rate will slowly decrease over time until the capped rate effectively becomes the default rate for all institutions." He said the fee is only part of the issue. "All credit unions, regardless of size, have to comply with the routing and exclusivity provisions, and there are significant costs related to those provisions," he noted.
The report also found that several CU-owned networks, including Alaska Option and Credit Union 24, pay among the lowest fees to card issuers per PIN debit transactions, 17 cents and 18 cents, respectively. STAR, PULSE, MAESTRO and NetWorks pay 24 cents, the highest fees. Those figures range from 0.27% of an average transaction (for Alaska Option) to an average of 0.71% for NetWorks.
For signature debit, MasterCard and Visa both charged merchants the same, 24 cents, and Discover 17 cents. The Fed's survey covered the period Oct. 1, 2011, when the Durbin Amendment went into effect, and Dec. 31.
There were approximately 46.7 billion debit card transactions in 2011, with a value of more than $1.8 trillion. This was a 24% increase from the number of transactions in 2009 (37.6 billion) and a 27% increase from the value of transactions in 2009 ($1.4 trillion).
Signature debit transactions represented about 63% of transaction volume and 61% of transaction value in 2011; the remainder were PIN debit transactions.
CUS EYE SWAPS MARKET AS
NCUA EASES REGULATORY REINS
ALEXANDRIA, Va.-NCUA is preparing to ease the reins on the use of financial derivatives and allow more credit unions to deal in a variety of instruments that would help the hedge interest rate risk, like interest rate swaps, caps, floors, options and collars.
Dealing in financial derivatives has been restricted under a ten-year pilot program to a small number of CUs approved by NCUA. Many of the authorized users did so through dealers that had proven expertise, such as Wes-Corp FCU. But proposed rules would open these commonly used tools to many more.
"Our intent is to safely allow more credit unions to use derivatives responsibly as a hedge against interest rate risks," said NCUA Chairman Debbie Matz at a January NCUA Board meeting. "Credit unions that have high interest rate risk exposure on their balance sheet could offset some of those risks if they purchase the right types of derivatives."
NCUA is looking at a variety of parameters that would guide the broader program, such as minimum standards for financial health and net worth, and expertise and limits on specific types of instruments. A final rule, which is not expected until later this year, will restrict the use of derivatives to hedging.
Some of the pilot CUs say limited use of financial derivatives has helped them hedge interest rate risk in times of turmoil. James Moody, president of Chevron FCU, told NCUA in a recent comment letter, such hedging helped his $2 billion credit union enhance profitability "while maintaining robust net economic value in interest rate shock scenarios," even during the credit shock of 2008.
Executives are keen for greater access to such tools. "Now is an especially appropriate time to begin that participation, with the interest risk exposure caused by long-term, fixed-rate mortgages in this artificially low interest rate environment," said DFCU Financail CFO Marvin Elenbaas in a recent comment letter on NCUA's proposal.
"Rarely has the need for balance sheet management strategy been greater," said Kevin Cole, CFO of Oregon's Maps CU, in another comment letter. "Derivatives are a tool that could help credit unions better serve members in a safe and prudent manner and are a logical extension of the Agency's focus on interest rate risk in the credit union system. While I advocate for the broadest authority possible for credit unions, some additional authority is preferable to none."
"The current structure that requires a credit union to seek approval to be part of a pilot program by NCUA has prevented many federally chartered credit unions including OSU Federal from using even simple interest rate swaps," wrote Bonnie Humphrey-Anderson, CFO for Oregon FCU. "Having access to derivatives such as this would have been a huge benefit to our credit union during the last four years."
