Pending Credit Card Measures Could Cut Noninterest Income
WASHINGTON -- A bill pending in Congress and proposed regulations could mean less noninterest income for credit unions.
The bill (H.R. 5224) passed by the U.S. House, as well as rules being considered by the Federal Reserve, the NCUA and the FDIC, would allow credit union members to opt out of having some or all overdrafts paid at the point of sale. Credit unions would also be banned from charging overdraft fees if the overdraft is the result of a hold on funds.
Also, the overdraft fees on debit cards could instead be disclosed as a finance charge, and thus subject to the antiusury laws; credit unions can only charge up to 18% interest. In other words, if a credit union charges $25 for an overdraft and someone overdraws the account by $100, the CU could not charge the full amount because it would exceed the 18% cap.
"A credit union could earn only pennies on that amount if someone repaid after two weeks, a notable difference than under the current system," said NAFCU's Director of Regulatory Compliance Anthony Demangone.
The future of H.R. 5224, which passed the House 312-112 in September, is uncertain in the Senate for this year. If the bill dies in that chamber, the legislative process would have to start from scratch when the new Congress reconvenes in January.
The NCUA, the Federal Reserve and the Office of Thrift Supervision have said they hope to issue final rules before the end of the year.
Through the middle of 2008, noninterest income generated $8.1 billion for credit unions, a 7% increase over the same period in 2007, according to Callahan's Peer to Peer.
Congress could also cut credit union revenues by placing limits on interchange fees. In July, the House Judiciary Committee passed legislation ordering merchants and card issuers to negotiate interchange fees.
The Credit Card Fair Fee Act (H.R. 5546) passed the House Judiciary Committee in July, but no action was taken by the full House and the measure would have to be reintroduced next year. House Judiciary Committee Chairman John Conyers (D-Mich.), the bill's sponsor said the bill would "level the playing field" controlled by MasterCard and Visa. While several opponents, including the panel's top Republican, Rep. Lamar Smith (R-Texas), said the measure would limit consumer choice and interfere with the workings of the marketplace.
Credit unions have long maintained that because they have smaller margins, a system that sets fees at too low a will cause them to lose much-needed revenues that they can't make up for by issuing stock. Also, driving credit unions out of the credit card market could cause higher interest rates and predatory pricing.
In the card industry overall, in 2007, credit card interchange made card issuers, particularly banks, $42 billion dollars, according to statistics from Visa USA.
The woes of the secondary mortgage market have also caused a reduction of income for credit unions. During the first half of 2008, credit unions sold 25% of their mortgages on the secondary market, compared with 27% in 2007 and 30% in 2006, according to the NCUA.