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CUNA engages on two fronts in interchange battle
WASHINGTON (3/31/11)—The Credit Union National Association (CUNA) engaged in the interchange battle on two fronts Thursday: in a letter to Federal Reserve Board Chairman Ben Bernanke expressing concerns about a compressed timeframe for preparing for new rules, and in a Huffington Post article to debunk merchants' claims. In the letter to the Fed chairman, CUNA thanked Bernanke for his candid assessment to Congress that it is not possible for the agency to meet a statutory April 21 deadline for the issuance of debit interchange fee standards (See News Now March 30). However, CUNA President/CEO Bill Cheney underscored concerns that with the final rule being promulgated closer to the July 21 effective date, there will not be insufficient time for institutions, networks, and the marketplace to prepare for compliance with a final rule. “In light of all the concerns about the regulation of debit interchange fees, we firmly believe that a congressionally mandated delay is not only reasonable but also necessary in order to ensure small issuers will not be harmed and consumers that rely on them will not be disadvantaged,” Cheney wrote. And in a Huffington Post article published Wednesday, Cheney called it “grossly inaccurate” for retailers to claim to represent Main Street in the current interchange battle, and misleading to cast the debate as a fight between Main Street and Wall Street. Credit unions, which are aligned with banks in seeking a delay of pending interchange rules, are “cooperatives, locally based and owned by their 93 million members -- the people who do the saving and borrowing,” Cheney noted. “Many are teachers, firefighters, police officers, members of the military. That's as Main Street as you can get,” he said, and added that it is credit unions’ concerns for their members/owners that dictates the credit union position on interchange. Also, Cheney reminded, it is those consumers who can afford it least—low- and moderate-income Americans-- that are likely to be hurt the most if a current plan to limit fees goes forward. Cheney emphasized, “Our industry has no allegiance to the banks, which have a history of opposing pretty much everything credit unions try to do. We are only aligned with the banks on interchange because in this case our members will be harmed by the effects of the legislation and pending Fed proposal.” At the core of the interchange debate is a provision in the Dodd-Frank Wall Street Reform Act that requires the Federal Reserve to set limits on debit card interchange fees, the fees that card issuers charge merchants for use of this part of the payments system. “Credit unions receive on average about 44 cents per debit card transaction as interchange revenue. The Fed proposal would chop that to 12 cents, a figure that doesn't begin to account for the actual debit card service costs, such as those related to fraud and systems support,” Cheney noted. Credit union members will be hard hit by this change. As member-owned cooperative, the credit union business model passes savings onto its members--$6.5 billion just last year. “However, credit unions will have absolutely no choice but to pass the higher interchange costs on to their members, most likely by adding fees to debit cards or other services. And the people who can afford it least are the ones likely to be hurt most,” Cheney said. He also called an interchange law exemption for most community banks and credit unions--those with assets under $10 billion—“fatally flawed.” Overtime, he said, market pressures would force the interchange price that smaller institutions receive toward the lower, 12-cent rate, too. CUNA has called on Congress to order the Fed to halt work on its interchange proposal, and has urged lawmakers to go back and study the possible unintended consequences of the Dodd-Frank provision. Sen. Jon Tester (D-Mont.) has introduced a bill that would delay implementation, and in the House Rep. Shelley Moore Capito (R-W.Va.) has introduced a similar bill.


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