Interchange Action Alert

From CUNA News Now:

CUNA defines issues, continues interchange fight

WASHINGTON (5/26/10)--With conferees for the upcoming congressional
regulatory reform conference being announced this week, the Credit Union
National Association (CUNA) will again urge legislators to drop interchange
provisions in the current Senate bill, because they would increase costs and
reduce choice for consumers.

The interchange provisions, which were introduced by Sen. Richard Durbin (D-Ill.)
during the recently concluded amendatory process, would direct the Federal
Reserve to issue regulations to govern interchange fees charged for debit card
transactions, to assure that they are what the proposed language terms
"reasonable and proportional" to the cost incurred in processing the transaction.
Although Durbin's amendment exempts credit unions with under $10 billion in
assets, CUNA remains opposed to the interchange provision and is very
concerned about unintended consequences for credit unions. Under the Durbin
provision, big issuers would be forced to charge a presumably lower rate set by
the Federal Reserve, while credit unions and other small issuers would continue
at their current interchange rates for debit card transactions.

While CUNA acknowledges that the exemption seems good in theory, the group
identifies a major loophole as written: Nothing in the amendment would require
the payment card networks to operate a two-rate system, and there is no reason
to believe they would do so absent a mandate. Therefore, CUNA believes that,
ultimately, the payment card networks would simply lower small issuer debit
interchange rates to match the rates set by the Federal Reserve for large issuers.
Another competitive advantage for larger issuers could be potential preferential
treatment for lower-cost card transactions by large retailers. CUNA is also
concerned that merchants would discriminate against credit unions by providing
certain discounts for cash and check payments.

The merchant groups that have promoted changes to interchange rules have
claimed that their backers would return any interchange savings to their paying
customers. However, a pair of amendments that would have statutorily required
retailers to pass those savings along to consumers were opposed by retailer
groups and, ultimately, failed to be included in the final legislation. Further, any
savings that are seen by consumers would likely be negated by new charges that
lenders will assess on individual accounts.

"Consumers will pay either way," according to CUNA Chief Economist Bill
Hampel.

CUNA remains opposed to the legislation. Though the legislation will require
larger credit issuers to lower their rates to a reduced rate established by the
Federal Reserve, credit unions and other small financial institutions would
continue to offer their current interchange rates.

Further, nothing in the amendment would require large credit networks to operate
a dual-rate credit system. Another competitive advantage for larger issuers would
be potential preferential treatment from large retailers. CUNA is also concerned
that merchants would discriminate against credit unions by providing certain
discounts for cash and check payments.

The merchant groups that have promoted changes to interchange rules have
claimed that their backers would return any interchange savings to their paying
customers. However, a pair of amendments that would have statutorily required
retailers to pass those savings along to consumers were opposed by retailer
groups and, ultimately, failed to be included in the final legislation. Further, any
savings that are seen by consumers would likely be negated by new charges that
lenders will assess on individual accounts.

Interchange legislation was not included in the House's financial regulatory
restructuring bill, and the Senate interchange amendment will come up for debate
during the House/Senate conference sessions. The Senate on Tuesday
announced that Democrats Chris Dodd (D-Conn.), Blanche Lincoln (D-Ark.), Tim
Johnson (D-S.D.), Charles Schumer (D-N.Y.), Tom Harkin (D-Iowa) and Jack
Reed (D-R.I.) and Republicans Richard Shelby (R-Ala.), Saxby Chambliss (RGa.),
Mike Crapo (R-Idaho), Judd Gregg (R-N.H.) and Bob Corker (R-Tenn.) are
being considered to be among the conferees.

While CUNA will continue discussions with these senators in the days leading up
to the conference, CUNA's grassroots advocacy strategy will cast a wider net,
asking credit union representatives to contact their respective members of
Congress, no matter what their level of conference participation is.