In lobbying to defeat an amendment to the bank bill that would roll back interchange fees on debit cards credit unions are finding themselves in an increasingly familiar position – opposing the consumer lobby groups.
“The credit unions got on the overdraft bandwagon; that was a big mistake. They should not be getting on the interchange bandwagon,” said Edwin Mierzwinski, consumer protection director of U.S. Public Interest Group, one of several consumer lobbies backing the Senate’s interchange provision.
The credit unions’ interchange efforts, according to Mierzwinski, is another example of the banking lobby “dragging the credit unions along,” such as in the legislative battles regarding bankruptcy reform, overdraft protection and credit cards.
The well-known consumer advocate said his group believes the interchange amendment, which would have the Federal Reserve direct large card issuers – but not credit unions or community banks – to lower interchange fees deemed excessive, will aid consumers by lowering the growing fees, estimated at about $50 billion a year. “The issue here is the merchants can’t negotiate with banks or credit unions [for lower rates],” Mierzwinski told Credit Union Journal while asserting that interchange rates are set by a market duopoly, the MasterCard and Visa networks that are controlled by big banks. “The battle here is over a few unfair contractual practices.”
But credit unions, who earn billions of dollars in the lucrative card fees, argue that lower fees will not necessarily accrue to consumers, but will end up in the pockets of the retailers – especially the big box companies such as Wal-Mart that are driving the issue. They question why consumer groups such as U.S. PIRG did not support amendments that would have required retailers to pass back lower fees to consumers.
The so-called credit union carve-out from the bill, exempting credit unions and banks with less than $10 billion in assets from the Fed’s price controls, will have unintended consequences by forcing small issuers to either lower their rates to compete with the big banks or abandon the market altogether, according to NAFCU. “The fact remains,” said Dan Berger, chief lobbyist for NAFCU, which is helping to organize opposition to the interchange amendments, “credit unions will sell their portfolios and the only people offering cards will be big banks that have the economies of scale, in turn, the big banks will charge higher interest rates and fees.”
U.S. PIRG’s Mierzwinski labeled the provision of debit card fees “part of the battle in a bigger war,” to open up the lucrative cards market, which is more than 80% controlled by the two cards giants, to greater competition and transparency. Interchange fees on cards, which average more than two cents for every transaction in the U.S., are the highest in the world, according to the consumer advocate. “A world where banks get two cents of every dollar of virtually every transaction – non negotiable – is not a good world,” he said.
He noted several other provisions of the interchange provision that he believes are pro-consumer, including language that will bar MasterCard and Visa from prohibiting merchants from offering a discount for the use of cash, instead of a credit or debit card, or from prohibiting merchants from encouraging the use of cards with lower fees.
The credit union lobby was working over the weekend with representatives of House and Senate leaders who will meet after this week’s congressional recess to hash out differences on the separate versions of the bank bill in hopes of persuading them to scrap the interchange language, which was not included in the House’s version passed in December.