A small surge in the use of cash and the popularity of ATMs,especially fee-free ATMs, may be among the unintended consequencesof the financial reform act that President Obama signed into lawearlier this year.

That's because the law contained an amendment sponsored bySenator Richard Durbin that mandated federal regulation of debitcard transactions. The amendment's instructions to the FederalReserve to set an interchange rate for debit transactions drew themost credit union attention and opposition, but credit union ATMexperts say other parts of the amendment could also make lastingchanges in the ongoing competition between cards and cash.

“Depending on how this [new law] is implemented, we could see anincremental increase in cash and cash transactions,” said JimHanisch, executive vice president with CO-OP Financial Services.“But this will likely be a slow sort of glacial change rather thananything precipitous.”

According to statistics from CO-OP, the Federal Reserve and themajor card brands, cash accounts for roughly 31% of purchasetransactions in the U.S. right now, a figure that has remainedremarkably stable and only declined slightly in the last decade.Hanisch expects that changes in the way debit cards are regulatedcould send that percentage up by a percentage point or two but notmuch more than that.

Hanisch and other ATM authorities also argued that looking atsuch large macro-economic trends will miss a big part of theregulatory impact. The last decade has seen the rise of a class ofconsumers, particularly among the young, who rarely use cash to payfor anything. Unlike previous generations of consumers, Hanischobserved, these younger consumers are used to being able to usetheir debit cards unencumbered to make purchases of almost anyamount. Restricting debit card usage or shifting the decision aboutwhich card to use to which card might cost more to use may undercutconsumer behavior that has taken years to develop.

Jim Park, CEO of the Credit Union 24 ATM and EFT network,largely agreed. Park and Hanisch are of the generation that tendsto keep at little cash in his wallet, but Park acknowledged thatmany younger members of the network's participating credit unionshave a different attitude toward cash and cards but that could beat risk.

Whether cash begins to get the upper hand over debit cards willdepend on the actions of two separate groups that togetherintroduce a great deal of uncertainty, Hanisch and Park said.

First, merchants will have to take advantage of the part of theDurbin amendment that allows them to set minimum purchase amountsfor credit cards, Also, consumers will have to confuse that limiton credit card transactions for all card transactions.

Hanisch and Park fear some of that confusion might take placebecause consumers have proven easy to confuse on the differencesbetween transaction types in the past. Further, the standard forconsumers breaking with their debit cards might be as low asraising repeated questions about whether they are accepted or forwhat transaction amounts.

“If you have to wonder whether or not you can use your debitcard when you buy the four-dollar sandwich down the block, youmight as well just start carrying cash,” Park noted.

He and Hanisch also speculated about the impact of the othergreat unknowns stemming from the Durbin amendment. First, itexempted any financial institutions of less than $10 billion inassets from the debit interchange cap. And, some banks have alreadybegun to mention fees for some debit card transactions to helprecoup some of the lost interchange income.

“I think we need to see how these regulations shake out,”Hanisch said. “It's not clear to me that the separate track forthose institutions below $10 billion will really be workable or howmany banks are going to start charging for at least some of theirdebit transactions. It's really hard to tell what might happenwithout knowing more about where those policies might go.”

Hanisch speculated that if the exemption from the cap for debitcard issuers of under $10 billion succeeds, credit unions might beable to keep their debit cards free of charge to their members, andif banks start charging fees for some debit card transactions, theymight have another competitive edge over banks. It wouldn't beimpossible for credit unions to start offering their memberssurcharge-free debit cards in much the same way as they offersurcharge-free ATMs, Hanisch remarked.

Park urged credit unions not to stop working with regulators andpoliticians to craft the regulations.

He also recommended that credit unions keep an eye out for aproposal that failed in the legislative process that mightresurface again in regulations. “One of the amendments that gotknocked out of the bill would have capped ATM fees at, I think, 50cents,” Park said. “Credit unions need to pay attention if thatsurfaces as a regulation, and then oppose it if it does.”

Park explained that this type of fee cap would both cut intocredit unions' income from nonmembers using their ATMs as wellperhaps leaving their members fewer ATMs. He estimated that morethan 70% of ATMs deployed by independent service organizations(organizations not affiliated with a financial institution) wouldlikely be pulled from service if a low cap were put into place.This would both be inconvenient for credit union members needingaccess to their cash, he said, but may also put pressure on creditunions to deploy more ATMs themselves to meet member demand.

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