Wall Street, Swipe Fee Reforms Are Good For Consumers and Credit Unions
I've represented consumers for 20 years in Washington, D.C. On television or radio my answer to the question "What's the best bank?" is always "Bank at a credit union, not at a bank." In the late 1990s, my organization, U.S. PIRG, joined the Consumer Federation of America in an amicus brief to the Supreme Court and then in lobbying Congress in favor of preserving strong credit union field of membership rules.
But for that entire twenty years I have wondered: Why do the credit unions line up with the banks on every legislative and regulatory issue? Aren't the credit unions member-owned alternatives to banks? Shouldn't they be better? I sometimes wonder whether, after the savings and loan collapse of the 1980s, credit union management was taken over by former S&L executives.
Which brings me to today's discussion of the Dodd-Frank Wall Street Reform and Consumer Protection Act. It will establish the landmark Consumer Financial Protection Bureau, and it will add needed reforms to the currently anti-competitive swipe fee, or interchange, marketplace.
The last I checked neither of these reforms will harm credit unions, which got special carve-outs from both.
First, it is true that credit unions, like nearly all other bank and nonbank financial firms, will be subject to the rules of the CFPB. That makes sense for consumers. No matter where we shop for financial products, we'll have one set of rules.
But in a nod to the grassroots power of credit unions and small banks, both will only have the rules enforced by their existing prudential regulators. So, I am extremely disappointed that some credit union leaders are claiming that despite this massive carve-out credit unions should still oppose the bill.
Anyone who doubts that the CFPB is the biggest victory for financial consumers since deposit insurance is living with their heads in the sand.
And anyone who claims that the CFPB will go off like an unguided missile at the credit unions-instead of at the payday lenders and big credit card and mortgage companies that have caused consumers, taxpayers and the economy so much grief-is just wrong. I know some of you will say, "Oh, Ed is misrepresenting our opposition. It isn't that at all, it's just this regulatory paperwork burden, blah blah." Not true.
Actually, the CFPB will simplify overly complex, sketchy consumer products and make it easier for your compliance staffs, so get past that one, too.
Second, the Durbin amendment's reform of interchange swipe fees also includes a carve-out for credit union debit cards.
The interchange marketplace is out-of-control. Even the federal government cannot negotiate the hundreds of millions of dollars in swipe fees it pays. U.S. swipe fees are the highest in the world. As the card networks migrate consumers from cash and checks to debit, the incidence of swipe fees continues to grow. All consumers, including cash customers, end up paying more at the store and more at the pump because merchants can't negotiate swipe fees or advise their customers of lower cost payment options.
So, the Durbin amendment does two things. First, it gives the Federal Reserve authority to determine that most debit swipe fees are reasonable and proportional, but it carves-out credit unions from that requirement. Then, it eliminates unfair contractual practices that prevent merchants from offering legal cash discounts or telling consumers about lower-cost options. I have yet to meet the reform that improves transparency that isn't good for consumers.
The market hasn't allowed negotiation or competition, so the government is being asked to step in. What is wrong with that? Meanwhile, Visa and MasterCard are happy to have the sympathetic faces of credit unions fighting on their front lines.
I am encouraged that some credit unions are establishing low-cost alternatives to unsustainable payday loans and that credit union account features are more pro-consumer than bank account fees. I wish, for once, credit unions would line up in Washington with their member-consumers instead of with the big banks time and time again.
Ed Mierzwinski is Consumer Program Director at the non-profit, non-partisan U.S. Public Interest Research Group. He blogs at www.uspirg.org/consumer-blog