Interchange Battle Scars Could Make Their Mark on Business Lending Fight
The Independent Community Bankers of America had the right idea with regard to interchange regulation. I'll probably have to run for cover at the CUNA/WOCCU 1 Conference this week for stating that, but it's true.
In a letter to state bank trade associations discovered by Bloomberg, ICBA CEO Camden Fine, more colorfully than I can reiterate here, stated that Wall Street doesn't give two hoots about the banks on Main Street but "only care[s] about the credibility small banks can wield on Capitol Hill to get them out from under this rock." He recommended that community banks not join the larger banks in the battle against interchange fees.
The same holds true for credit unions. Will the big banks be supporting credit unions' efforts in the coming weeks to push through legislation to expand their member business lending authorities? Heck, no.
But credit unions stood right on the front lines of the lobbying onslaught, arm-in-arm with the American Bankers Association and large banks, against debit card interchange fee regulation. Now, as some of you walk the halls of the MGM Grand in Las Vegas, the battle is still being waged, side-by-side with the big bankers.
As I have written in previous columns, credit unions' grass roots have been pretty impressive in the interchange battle and it was a necessary war to wage. Not only are the card issuers now stuck with replacing all the cards due to data mined by hackers because of security breaches that typically occur on the retailers' end, but they also get to pay even more for it. In addition regulating interchange fee income without requiring an equivalent price reduction at retailers is anti-consumer, because it will result in a double tax when the retailers don't lower their prices and the card issuers begin charging consumers one way or another on their end. Credit unions were ineffective in reframing the issue from anti-consumer to the retailers just want to decrease their cost of doing business and increase their profit. In part, that was because credit unions were seen as cohorts of the banks.
The powerful retail lobby effectively got in their punches early and often, framing the issue as a 'hidden tax' on the poor American taxpayers during a recession. It's a confluence of events presenting a difficult challenge and mustering all your friends on Capitol Hill should be a priority. But the scourge that led to the downfall of the American-no, global-economy? The entities that would prefer credit unions go out of business so there's less of a governor on their pricing? The credit union lobby acknowledged chances of killing the legislation were slim, so if credit unions should have hitched their wagon to anyone, maybe it should have been the community bankers. Certainly some community bankers are rabidly anti-credit union too, but at least they aren't being vilified by lawmakers and consumers alike. The legislation specifically targeted problems caused in large part by the largest banks and other unregulated entities.
All that will be ancient history soon-or will it? There has been some talk that credit unions are losing favor with some of the more pro-consumer Democrat lawmakers; it was a risk the lobbyists knew they were taking.
If that's true, it could very possibly impact the congressional support credit unions will be able to garner as they head immediately in to lobby for the member business lending cap increase. The credit union lobby was able to get an amendment introduced on the Senate side, which may be enough to nudge the House to act. Financial Services Committee Chairman Barney Frank had previously agreed to hold a markup of the member business lending legislation.
Congress is hoping to adjourn by Oct. 8, in time to head home for the November elections. This is significant because at the end of this congressional session (2009-2010), all legislation is cleared out and must start over again. It's typically easier to get going the next time around once there's been some progress, but credit unions would be much better off to push it through now. However, the jobs bill that's being used as a vehicle may run into trouble as it has a price tag attached to it and Congress is beginning to pay some attention to the budget.
CUNA and NAFCU have done a good job of setting the Udall amendment up as a no-cost way to assist small business, lower unemployment and boost the economy. Then-CUNA President/CEO Dan Mica delivered fiery testimony at a May hearing regarding the creation of a $30 billion fund for community banks' small business lending.
While putting $10 billion into the economy and creating 100,000 jobs, according to CUNA, is nothing to sneeze at, it's also small potatoes compared to the 14.6 million unemployed. It is commendable and supportable, and surprisingly enough, Frank has said despite pitting banks and credit unions against each other at an election time, he's going to put it to a committee vote. The outcome could sway the political efforts of either side during a particularly contentious election period. If Frank stays true to his word, credit unions will see who their true friends are and support them-and oppose others-accordingly. Member business lending and this election cycle will be a real test for newly appointed CUNA President/CEO Bill Cheney as well as credit unions' lobbying prowess in general.
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