Representatives from credit unions and community banks during a June 9 press conference in Washington, D.C., exhorted lawmakers to exclude the debit-interchange amendment from the final financial-reform bill, claiming that altering debit-interchange rules likely would force them to raise overall banking fees charged to consumers.
“If this (amendment) is allowed to become law, thousands of community banks will be forced to reevaluate and reconsider their ability to issue debit cards,” Camden Fine, president and CEO of the Independent Community Bankers Association, said during the conference, which the Electronic Payments Coalition organized and broadcast online. The coalition represents the nation’s largest payment networks and card issuers.
Smaller institutions are deeply concerned about a provision in the amendment, crafted by Sen. Richard Durbin, D-Ill., that would enable the Federal Reserve to set “reasonable and proportional” debit-interchange rates based on the cost to the nation’s largest debit issuers, Fine said.
The amendment also would let merchants set minimum transaction levels for accepting electronic payments and would enable retailers give customers discounts for using one payment network over another. The Senate approved the amendment May 13 in a 64 to 33 vote. The House version of the financial-reform bill does not contain a similar amendment, and lawmakers are in the process of reconciling the bills (
The amendment would exclude institutions with less than $10 billion in assets, but that could cause merchants to discourage consumers from using debit cards from smaller institutions with potentially higher fees, Fine said.
Under the existing system, smaller financial institutions are able to compete with larger issuers that have greater economies of scale because merchants treat all debit cards equally. “Smaller debit issuers would be at a distinct disadvantage compared with those that have volume on their side,” Fine said. “This (would) create a discriminatory system.”
Indeed, merchants are pushing the amendment to gain a windfall at financial institutions’ expense, said Fred Becker, president of the National Association of Federal Credit Unions, noting debit-interchange fees cover far more than “just moving a transaction along,” including helping to cover the cost of fraud. Credit unions traditionally have charged lower fees for services than larger financial institutions, but if Durbin’s amendment forces interchange to lower levels, it likely would force credit unions to increase consumer fees to cover fraud costs, he noted.
“There is no way you can pass a law and eliminate costs” from covering fraud and other services related to providing debit cards, said Daniel Mica, president and CEO of the Credit Union National Association. “For years, smaller institutions have picked up millions if not billions of dollars in fraud and other costs,” he said.
Debit card fraud costs merchants nothing, said Harriet May, president and CEO of the Greater El Paso (Texas) Credit Union, which has nine locations. “Our real costs (of offering debit cards) comes from the lack of security on the part of merchants,” she said.
Treasurers from 10 states have written to lawmakers opposing the debit-interchange amendment on the basis it would increase costs for states that use debit cards to distribute benefits, Fine said (
Merchants that set minimum-purchase requirements for debit transactions also may force benefits recipients to make additional superfluous purchases to buy items they need, Fine said. “This amendment will cut off channels of commerce for certain segments of our population,” he said.
Credit unions and community banks welcome hearings on debit card interchange, Mica said. “There have been no hearings, no (legislation) mark-ups. This legislation was not requested by the White House. In a nutshell, we want lawmakers to remove this (amendment) from the financial-reform bill, have hearings on it, and see if we can do this right. ... The correct thing is to find a rational way to allocate these costs and (not to) turn the boat upside-down.”
The National Retail Federation, which represents the majority of U.S. retailers, for years has lobbied lawmakers to reduce credit and debit card interchange rates. Debit interchange rates average about 1% of the purchase, resulting in $1 billion in costs annually to merchants, resulting in increased consumer costs for goods and services, a spokesperson for the federation says.
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