With their new majority in the House, Republicans are vowing to keep a close eye on regulators, and the Federal Reserve's regulation of interchange could well be one of the lawmakers' top priorities.
"Hastily written rules may end up doing more harm than good to consumers and have negative effects on competition in the marketplace," House Financial Services Committee Chairman Spencer Bachus (R-Ala.) and committee member Jeb Hensarling (R-Texas) wrote in a comment letter to the Fed. "There are lingering concerns regarding whether the Fed has had the time and input it needs to best address the intent of the statute."
At press time, Bachus hadn't announced a hearing schedule, but he promised that the committee would make oversight of the financial overhaul bill passed by Congress last year-of which the provision giving the Fed power to regulate interchange fees is a part--one of its top priorities.
The Fed'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 percent of a transaction, often around 1%. Comments on the proposed rule are due to the Fed by Feb. 22.
CUNA President/CEO Bill Cheney warned that the rule could have "tragic consequences," for credit unions, their members and debit card users.
The trade association is calling for hearings on the interchange rule and noted that Congress approved the amendment giving the Fed the power to regulate interchange fees without holding hearings on it. Supporters of the amendment, which was first included in the Senate-passed version of the bill, contend that there were several hearings on the interchange issue during the last two Congresses.
NAFCU hasn't called for hearings, but in a letter to lawmakers, NAFCU President/CEO Fred Becker urged "strong oversight" and requested that since credit unions are losing fee income, they should have to spend less to repair security breaches from certain card uses. Merchants should be mandated by law to pay for breaches caused by their own neglect, Becker added.
Even though the interchange amendment was introduced by Senate Majority Whip Dick Durbin (D-Ill.), debate on the issue hasn't been along party lines. Rep. Barney Frank (D-Mass.), the top member of his party on the House Financial Services Committee, expressed concern about the impact of the regulation on credit unions and other small financial institutions.
In a letter to Federal Reserve Chairman Ben Bernanke, Frank wrote that the regulations "if not properly crafted, may have unintended consequences for consumer choice, the protection of consumer information and Congress' intent to reduce the burdens on community banks, credit unions and government-benefit programs."
Frank told CNBC that the only reason the interchange amendment stayed in the final version of the financial overhaul bill was that Senate negotiators wouldn't budge on it during negotiations to reconcile the House and Senate versions of measure.
CUNA Senior Vice President John Magill said there is a "good chance" that the House will take some action on interchange, but he doesn't expect that an outright repeal of the amendment will pass.
NAFCU Director of Legislative Affairs Brad Thaler said, "Lawmakers have serious concerns about it [the proposed rule], and we will continue to have our staff and members contact lawmakers to put pressure on the regulators. We are continuing to show lawmakers how much damage the regulation would do to credit unions."
Several state credit union leagues are also instituting grassroots efforts, in conjunction with CUNA, on the issue.
"While the proposal does reference an exemption from interchange rate setting for small issuers with $10 billion or less in assets, it does not include provisions to enforce the exemption. Without enforcement, the exemption will likely prove meaningless and from a practical standpoint small issuers will end up being subject to the same rate setting as large issuers," New Jersey Credit Union League President/CEO Paul Gentile wrote in a letter to members. "It is vital that credit unions participate in this effort to reinforce to the Fed the importance of getting this proposal right for the future of credit union debit card programs."
The prospects for action in the Senate are less clear, though Senate Banking Committee Chairman Tim Johnson (D-S.D.) voted against the interchange amendment.
"The Senate will be tougher, in part because Sen. Durbin has a key leadership role, though Sen. Johnson is with us on this issue," said CUNA's Magill. "But if we are able to get House members to pressure regulators this will have a strong effect on the final regulation, regardless of what the Senate does or does not do."
NAFCU's Thaler said Johnson's support will help, but it's too early to tell where the issue will be on that chamber's agenda this year.