LANSING, Mich. (11/1/11)--The Michigan State Senate Banking and Financial Institutions Committee hosted a hearing Thursday on the debit interchange fee provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Representatives from the Michigan credit union and banking industries testified on the new regulation.
Michigan State Sen. Darwin Booher (R-Evart) listens to testimony Thursday at a hearing on the debit interchange provision of the Dodd-Frank Act. Michigan credit unions and the Michigan Credit Union League testified at the hearing. (Photo provided by the Michigan Credit Union League)
They discussed recent actions by many "capped" institutions to raise fees to cover the costs of their debit card programs and the ongoing concerns by small issuers that market pressures could drive down the interchange rates charged by exempt institutions, said the Michigan Credit Union League (MCUL) (Michigan Monitor
Marcia Hune, league vice president of government affairs, and Tony Carnarvon, CEO of Co-Op Services CU, Livonia, represented the credit union industry.
Hune provided a brief summary of the interchange fee provision and outlined ongoing concerns that merchants may influence consumers to use certain debit cards at the point of sale.
Hune also said that the full effect on smaller issuers such as credit unions is still unknown since they are unsure of what the future will hold for two-tiered network structures and their sustainability.
Carnarvon noted small issuers have an opportunity as larger, capped institutions implement new fees on basic debit cards and checking accounts. Carnarvon's credit union launched a "Shred My Card" campaign, which gives consumers the opportunity to take their bank debit card to any Co-Op Services location, open a new free checking account with direct deposit, shred their old bank debit card and receive $105--pending an approved membership.
"There's a major difference here," Carnarvon said. "Unlike other financial institutions, we're focused on giving our members better rates, added conveniences and more value. Co-Op Services has never charged a debit card transaction fee to our members and offers a free checking account with no monthly fees."
While opportunities have presented themselves in the short term, market forces will almost certainly put downward pressure on interchange rates for small issuers, potentially proving the small issuer exemption meaningless in the future, MCUL and Co-Op CU said at the hearing.
The Credit Union National Association is urging the Federal Reserve to increase the amount of per transaction fees that debit card issuers receive to cover their costs associated with fraud prevention.