Altering interchange fees could reduce consumer choice, CUNA testifies

WASHINGTON (10/9/09)--Testifying on behalf of the Credit Union National Association (CUNA), Local Government FCU Executive Vice President Mark Caverly told legislators assembled at a Thursday hearing on interchange fees that changing those fees would "reduce consumer choice for payment options, allow merchants to discriminate against credit unions and other small issuers," and allow merchants to assess deceptive and perhaps illegal surcharges on their customers.

Click to view larger image Testifying on behalf of CUNA, Mark Caverly told legislators that changing interchange fee systems would limit options for consumers. Pictured right: CUNA's Ryan Donovan.
Addressing the general use of interchange fees among credit unions, Caverly in prepared remarks told the lawmakers that the proceeds from interchange fees help support their card programs and "cover some of the costs associated with risk of non-payment that the card issuers assume, the risk of fraud and other data breaches that occur at merchants, and the administrative costs of the program."

"In short, the benefits merchants receive from accepting our cards far exceeds any interchange fees we receive," he added.

Caverly's credit union, which is based in Raleigh, North Carolina, currently holds $957 million in assets from 178,000 members, and issues 173,000 debit cards and 16,000 credit cards. LGFCU receives just over 14% of its monthly income from interchange fees, Caverly added.

Caverly questioned the motives of merchants and associated groups that seek to avoid paying their fair share of transactions, and opined that some merchant organizations may be trying to "drive credit unions... out of the payment card business." Portions of the act which would abolish the ""honor all cards" rule would, if passed, create "mass confusion" for customers and would "make it impossible" for Caverly's credit union to attract or retain members through a "competitive card program" for consumers.

Additionally, while merchants and merchant groups have decried interchange fees as overly costly, Caverly said that the fees have remained "relatively flat" over time.

Rep. Jeb Hensarling (R-Texas) expressed caution that both H.R. 2382 and H.R. 3639, the Expedited CARD Reform for Consumers Act of 2009 , which was discussed during a later portion of the hearing, could "exacerbate" the credit crunch at a time when small businesses are already having difficulty getting access to credit.

However, Rep. Peter Welch (D-Vt.) spoke up in favor of H.R. 2382, which he introduced, saying that the legislation represented "basic fairness and reasonable regulation of credit card and large bank practices."

Rep. Bill Shuster (R-Pa.) also lent his support to both pieces of legislation, saying that "action is needed to help level the playing field between consumers, small businesses, and credit card companies by requiring greater transparency and prohibiting unfair and abusive practices when it comes to interchange fees."

While she said that she understands the opposition of credit unions and small banks to any interchange fee changes, Rep. Maxine Waters (D-Calif.) said that there "have to be some changes" to the current interchange fee structure. While the "overall problems and abuses" of the interchange fee system trump some of the issues cited by credit unions and small banks, Waters promised to take their concerns into account as legislation moves forward.

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