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CU System
Op-ed CU would lose 600K a year on interchange
SANTA CLARA, Calif. (5/23/11)--In an editorial published in the San Jose Mercury News, the president/CEO of KeyPoint CU said his credit union stands to lose $600,000 a year if the proposed interchange rule is implemented. “Credit unions like mine will lose a big chunk of income that we depend on to give consumers lower rates and free services,” wrote Tim Kramer in the editorial, published Thursday. “So if the rules are implemented by the Fed, my institution is looking at potential losses of roughly $600,000 a year. That’s small change for Wal-Mart, but big money for us.” The losses may force KeyPoint to eliminate reward programs, to begin charging for checking accounts and to impose fees on debit cards, Kramer said. The possibility of these changes give Kramer reason to worry about the future of his credit union, he wrote, because he will no longer be able to offer members the services they expect from a community financial institution. The proposed debit card interchange fee cap of seven cents to 12 cents, down from a current average charge of 44 cents, is 70% to 90% below market rates, Kramer said. “Remember, this expense is for merchants, not consumers,” he wrote. “When you use your debit card to make a purchase, the consumer pays nothing for that convenience. The merchant pays a small fee that helps cover the cost of services like issuing the card, processing transactions and protecting consumers from fraud.” The recent breach of Sony data is an example of the expense fraud can create, Kramer wrote. Credit unions and community banks will end up spending millions reissuing cards as a result of the incident. He noted that 275 of the largest employers in the San Francisco-Silicon Valley region sent a letter to Sen. Dianne Feinstein (D-Calif.) in support of delay and study of the proposal. The group also asked consumers to e-mail and call the state’s congressional delegation to support The Debit Interchange Free Study Act, which would temporarily delay the rules. The Credit Union National Association (CUNA) opposes a proposal in Congress capping interchange fees and has told federal lawmakers that such action would harm consumers by driving up costs of debit cards, limiting consumer options, and harming competition and technological innovation. Interchange fees allow business costs, including the risk of consumer nonpayment, to be shared by the payments participants, CUNA said. It is asking Congress to stop and study the impact of the proposal. To read the complete editorial, use the link.
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