Any change to the rules regarding interchange fees would "provide an advantage to large financial institutions at the expense of credit unions and other small financial services providers," Chartway Federal Credit Union Vice President of Operations John Blum told the House Judiciary Committee last Wednesday.
He noted that because smaller institutions generally only break even on their credit card portfolios, any reduction in interchange fees "would cause a loss," he said in response to a question from Rep. Lamar Smith (R-Texas), the panel's top Republican.
The hearing was held to discuss a bill introduced by House Judiciary Committee Chairman John Conyers (D-Mich.) to allow retailers to join together to negotiate with Visa and MasterCard on interchange rates. To facilitate that, the bill would give the retailers a limited exemption to antitrust laws.
Although the legislation would allow credit unions to opt out of the negotiated settlement, Blum, whose credit union is based in Virginia Beach, Va., said that would create an unacceptable situation in which credit unions' cards would be "viewed differently by merchants and consumers than those from other institutions."
Blum, who testified on behalf of NAFCU and the Electronics Payment Coalition, said in response to a question from Rep. Howard Coble (R-N.C.) that credit unions offer credit cards because "our members want a card payment system" so they have the maximum number of payment options.
But Dave Carpenter, who owns a chain of six convenience stores in Iowa, told lawmakers that the existing system means that it takes more than half of the gallons of gasoline that his stores sell to pay interchange fees.
Carpenter, who testified on behalf of the National Association of Convenience Stores, said his business hasn't expanded as rapidly as it could because of runaway card fees. "Thus, any particular cost we cannot control actually has a far broader, negative impact on every aspect of our business, our employees, and our customers," he said.
Carpenter offered another perspective, that of an owner and board member of Liberty Bank, a $1 billion community bank with 30 branches. He said that interchange fees are of "little significance" to the bank in terms of profits. Carpenter said that there were more price competition on interchange, financial institutions of Liberty's size might have more ways to attract customers and the huge banks might become less dominate in the credit card field.
The bill discussed by the Judiciary Committee is similar to a bill passed by the panel in 2008 but never considered by the full House.
It is possible that the measure, or a related bill, could be added as an amendment to the regulatory overhaul bill that is currently pending in the Senate. When the House passed a similar bill last December, it did not include any mention of the interchange issue.