A few credit unions have begun to detail the impact of theFederal Reserve's proposed cap on debit card interchange, tellingthe agency that its proposed rule will sharply hurt their bottomlines.

“We have estimated that we stand to lose $402,000 a year ininterchange income from our members' debit card transactions ifthis Durbin bill is not amended,” wrote Eileen Rivera, CEO ofSkyOne Credit Union. “Our net income was only $84,000 in 2010. Wewill find ourselves in a position of significant negative earningsif we don't reverse this piece of the bill.”

Like others from the 26 credit unions that had writtenindividual comments to the Fed as of Jan. 20, Rivera pointed outthat the existing cap did not come close to recognizing the overallcosts of running a debit card program, particularly the cost offraud that card issuers bear on their own.

The Federal Reserve did not post “more than 2,124 form letters”on the rule, but it provided samples of six form letters on theproposal that it identified. All six were from groups of creditunions.

“One of the major costs associated with debit cards is fraud,”wrote Tabitha McDonner, a vice president with Southwest AirlinesFCU in a comment that made a similar point. “Financial institutionsbear the cost of fraud that occurs with debit card usage. Merchantsare currently liable for only a small portion of fraud thatoccurs-mostly online/mail/phone purchases and have zero liabilityotherwise. Financial institutions use the interchange income toprotect consumers from incurring fraud losses. That cost factor wasnot considered in the current proposal,” she added.

The comments from credit unions and industry trade groupsoutlined concerns that run counter to the optimistic assertionsthat have been spelled out by the cap's author.

Illinois Democratic Sen. Richard Durbin has written credit uniontrade associations in his state that the amendment that bears hisname and authorizes the cap would not harm credit unions with lessthan $10 billion in assets, which are supposed to be exempt fromits provisions. All of the credit unions that have written so farhave had less than $10 billion in assets.

Rex Fox, vice president of NW Community Credit Union, put thecap in the context of some of the reasons legislators had used tosupport it.

“The intent of the new legislation was to protect consumers, butin reality it is likely to backfire and actually limit choices forour members,” Fox wrote. “As you well know, the existence of creditunions has put pricing pressure on the banking industry to keeptheir prices competitive. We are part of the solution, not theproblem. I think the same can be said for many of the communitybanks.”

Debi Southworth, a credit manager at OMNI Community CreditUnion, also weighed in similarly.

“If we are not exempt from this rule, this would have asignificant impact on our income,” Southworth wrote. “It couldlower our income by over $850,000 per year. If we were to lose thisincome it would have detrimental effects on other areas of businessto our members. We would most likely have to raise our lendingrates, which are generally lower than other financial institutions.In addition, we would have to lower our deposit rates. Even thoughwe feel that it is important that credit unions be exempt, webelieve the only way for a solution to work would be a cap. We donot feel that the range of $0.07 to $0.12 would work for financialinstitutions.”

But of course, credit unions are not the only institutionsimpacted by the cap.

“Community banks, like Ohio Valley Bank, often find themselvesat the mercy of the huge bank card networks,” wrote Tom Shepherd,senior vice president. “The networks will be receiving pressurefrom the large banks, making the development of a two-tiered systemunlikely…. I do not believe this proposal was designed to harm thecommunity bank or the consumer; however, I fear that withunintended consequences, that is exactly what the end result willbe.”

In addition, there were a number of comments from cap supportersas well, many of whom own and operate small businesses that payinterchange fees.

John Houseman wrote the Fed to describe the impact interchangefees have on his small gas station and convenience store in a smalltown of about 18,000 people.

“While this [interchange] fee is only a small percentage, onitems which there is very little margin to begin with, coupled withthe price of these items increasing substantially as of late, ithas become a prohibitive fee,” Houseman wrote. “When the price atthe pump is only $2.00, this fee, which typically runs 1.5%-2%, isonly 3-4 cents per gallon.

However, as the price increases to $3.00, that fee nowrepresents a cost to me of 4.5-6 cents per gallon. This is asubstantial increase when my gross margin on fuel typicallyaverages only 8 cents (including the interchange fee).” Housemanadded that in 2010 he paid $48,383.15 (or approx. 5 cents pergallon sold) in interchange fees, adding that he only owns onestore in a small town.