Even before President Obama has signed the landmark bank reform bill into law credit union lobbyists were moving their attention to the Federal Reserve, which the new law will direct to monitor and possibly set price caps on debit card interchange.
Soon after the Senate was voting final passage on the bill July 15, NAFCU told Federal Reserve Chairman Ben Bernanke that even if most credit unions – those under $10 billion – are exempt from the interchange provisions of the bill it is most likely that any fees set by MasterCard and Visa will be applied by the giant networks to all card issuers. “Because those fees will now be artificially capped, small institutions will suffer,” said NAFCU President Fred Becker in a letter to the Fed Chairman yesterday afternoon.
The NAFCU chief urged the Fed to consider a broad variety of variables when reviewing whether the debit card fees charged by the banks over $10 billion are “reasonable and proper,” including costs to cover fraud, licensing, audits and examinations, as well as related technology investments.
“Additionally, major data breaches, which are increasingly common, multiple exponentially all of the costs described above,” wrote Becker. “For example, the Heartland data breach that was discovered in 2009 cost card issuing institutions millions of dollars in direct fraud and associated expenses.”
The bank bill has several provisions that will directly affect interchange revenue earned by credit unions.
The first will require the Fed to direct a cut in fees charged if they are found to be excessive, or not “reasonable and proper.” Observers generally expect the Fed to order some cut in fees charged by the big banks, which credit unions insist will be extended to them.
The Fed, however, may have a conflict in setting debit card interchange rates because it also is one of the nation's two automated clearinghouse operators, and ACH payments compete with debit (see story).
The bill also will require MasterCard and Visa to eliminate bylaws that prevent retailers from encouraging customers to use cash instead of one of their cards; or from offering discounts for the use of cash instead of cards. Both networks now prohibit such behavior at the risk of fines.
But sponsors of the interchange amendment have also made it clear they won’t stop targeting the fees and plans to pursue efforts to also bring price controls to the much larger credit card portion of the market. Separate bills in the House and Senate to do so will not be voted on this year, but are expected to be reintroduced in the next Congress.