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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 (R-Ga.), Mike Crapo (R-Idaho), Judd Gregg (R-N.H.) and Bob Corker (R-Tenn.) are being considered to be among the conferees. CUNA’s grassroots advocacy strategy will cast a wide net, asking credit union representatives to contact their respective members of Congress, no matter what their level of conference participation.


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