On Dec. 16, the Federal Reserve Board released draft rules for comment on the Dodd-Frank Wall Street Reform Act, including the Durbin interchange amendment. Comments are due by Feb. 22, Final rules will be published by April 21 and take effect July 21.
The draft rules create as many questions as they provide answers, but the upshot is that $1.6 billion in annual interchange income is potentially at risk for credit unions. What can credit unions do?
CO-OP Financial Services urges all credit unions to support our movement's trade associations in their activities. Write a comment letter to the Fed. CUNA and your league are drafting samples, but if you want your letter to have full impact, personalize it from your credit union with the following points.
The lawmakers intended that credit unions under $10 billion in assets be exempted. Encourage the Fed to enforce this exemption and see that current interchange levels are maintained for credit unions under $10 billion in assets.
If the exemption is not enforced, what will be the impact to your credit union? How much net income will your credit union lose? The calculation is simple, 73% of current debit interchange revenue. What would you need to do with pricing and how would that impact your members?
Even though credit unions should be exempted, we think it is important that you comment on interchange rates. Two alternatives were proposed, a 7 cent to 12 cent range or a 12 cent cap. We believe the only operationally workable solution is the second alternative, a cap.
The Fed also asked for comments on routing. Again, two alternatives were proposed. First, that each issuer has one signature debit network and one nonaffiliated PIN network. Second, that card issuers have two of each type of network. The first alternative will impact some credit unions, but we believe this to be the most practical and least disruptive.
Please comment on the cost of fraud prevention and the cost of fraud to your credit union, as this remains a huge concern.
In addition to the above, talk with your network representatives and encourage them to comply with the intent of the law and maintain current interchange levels for credit unions under $10 billion in assets. Visa has announced its intent to implement a two-tier structure but left the door open for change in response to market conditions. We expect MasterCard and others to follow suit. CO-OP asks all credit unions to encourage the two-tier structure and sustaining current interchange levels.
The House Banking Committee is likely to hold hearings to review the interchange provisions. We need to support this process even though the likelihood of any new legislation is low. Interchange is a critical issue to credit unions and the payments industry. We encourage all credit unions to make their voices heard by Feb. 22 on this issue.
Stanley C. Hollen
CO-OP Financial Services
Rancho Cucamonga, Calif.