CSCU Paper Presents Challenging Picture of Debit Cap
Almost every possible scenario for a cap on debit card interchange will result in credit unions losing significant income, according to a new report from Card Services For Credit Unions.
The association of credit unions which process their card transactions with FIS contracted with the Mercator Advisory Group, a leading financial service consultancy, to study different options for the debit card interchange cap. The recent financial industry reform legislation included an amendment authorizing the Federal Reserve to cap the interchange on debit cards issued by financial institutions of more than $10 billion in assets.
The report's authors noted that a lot of the details of the amendment, such as the actual way a debit card interchange cap will be calculated and implemented still have to be worked out. Nevertheless, the report posited that a medium size credit union with a debit card base of 35,000 cards would lose between $85,000 and $697,000 from its debit card interchange income, depending on the way regulators structure the cap and how large banks react to it
The report also advanced a set of different recommendations for strategies credit unions can use to mitigate the income loss. The report can be read here.