Federal Reserve Interchange Rule Could Result in Drastic Cuts For CU Income
The impact of the Federal Reserve's proposed rule on debit interchange could be a "drastic" cut to CU debit card income, according to CUNA CEO Bill Cheney.
Speaking on a press call sponsored by the Electronic Payment Coalition, an industry lobbying group put together to address interchange and other card payment issues, Cheney quoted industry estimates that the cut could drop debit interchange between 70% and 90%.
The Federal Reserve's proposed rule on debit interchange capped debit interchange at no more than 12 cents per transaction. This would be a flat fee whereas debit interchange is currently calculated as a percentage of a transaction, often around 1%. Hence a $50.00 debit card purchase now makes an issuer 50 cents would only make 12 cents.
The rule would only directly cover debit card issuers with over $10 billion in assets - thus only three credit unions. But Cheney and Jeff Tassey, executive director of the EPC, expressed concern that payment networks might not put dual debit interchange schedules into place that would protect small issuers like credit unions or whether merchants would not route their transactions only onto networks which paid the lower interchange rates.
Cheney acknowledged that CUNA staff had been reaching out to and working with Fed staff on the proposed rule but expressed surprise that some of the staff still believed that the debit interchange cut would wind up being passed back to consumers in the form of lower prices.
Trish Wexler, spokesman for the EPC, noted the new rule could bring an additional $13 billion to the big box stores who would be its primary beneficiaries.