A credit union executive testifying on behalf of CUNA before the House Financial Services Committee charged that the exemption meant to protect small asset debit card issuers from an interchange cap was essentially "meaningless."
First, there is a question of whether payment networks will maintain dual interchange schedules, one for those debit card issuers subject to the cap and one for those who are not, contended Frank Michael, the CEO of Allied Credit Union.
Allied is an $18 million credit union headquartered in Stockton, California.
Michael also pointed out that even if the payment networks supported a dual interchange system, the very dynamics of the payments industry would act to push the two interchange rates together.
"Approximately 80% of debit transactions involve cards issued by institutions with assets over $10 billion," Michael wrote in prepared testimony for the Committee's Subcommittee on Financial Institutions and Consumer Credit. "Therefore, the debit card networks will likely devote most of their attention to serving the providers of the vast majority of their business. Indeed, large financial institutions frequently receive individually negotiated volume based incentives from the networks in addition to interchange fees.
"The current pricing mechanism was no doubt designed to meet the needs of larger institutions and grow network volumes. Once larger institutions no longer benefit from that structure, it is far from certain that the networks will continue to devote the resources necessary to continue to maintain the complex, existing structure," Michael said.