Comment letters, congressional testimony and in-person visitswith lawmakers in Washington are key components of a concertedstrategy to kill, delay implementation of or at the least modifythe Federal Reserve's proposed rule on debit interchange fees.

CUNA wrote in its comment letter that the proposed rule wouldhave a “significant adverse effect on and in some cases direconsequences” for the 70% of credit unions that offer debit cards,and that the Fed should work with Congress to delay implementationby two years to further study the issue.

NAFCU wrote that the proposed rule's “supposed small issuerexemption is illusory” and won't protect small issuers. NAFCUPresident/CEO Fred Becker wrote that the caps proposed by the Fed aren't necessary in light of thefact that Congress only requires the Fed to establish standards forassessing whether the interchange fee is reasonable andproportional.

In addition to their own comment letters, CUNA and NAFCU signedon to a letter sent by nine financial services trade associations,including the ABA and the Independent Community Bankers ofAmerica.

In that letter, they contended that the rule would “disrupt afully functioning market.”

The position advocated by those groups got a boost during theFeb. 17 testimony before the Senate Banking Committee of FederalReserve Chairman Ben Bernanke.

He said that “it is possible that exemption [for financialinstitutions with assets of $10 billion or less] may not beeffective in the marketplace.” And added that it is “possible that,in practice, they [smaller institutions] would not be exempt fromthe lower interchange fee.”

Those messages and personal stories about the impact ofrestrictions on debit interchange fees on their bottom line will bereinforced when several thousand credit union executives andvolunteers come to Washington for the Governmental AffairsConference and hold meetings with members of their congressionaldelegation.

But those supporting the rule, or who want it stronger, aren'tkeeping silent either.

National Retail Federation Senior Vice President, GeneralCounsel Mallory Duncan wrote that Congress mandated that the Fedissue a rule because of a “notorious market failure. A failureexploited by the largest and most efficient financial institutionsand networks to create a situation such that the citizens of thecountry who pioneered cost savings improvements in payment systemsnow pay billions of dollars more for access to those same accountsthan when older, manual, far less efficient processes were thenorm.”

The amendment empowering the Fed to issue a rule on debitinterchange was sponsored by Assistant Senate Majority Leader Richard Durbin (D-Ill.) andwas included in the financial overhaul bill that Congress passedlast year. As a result of intense lobbying by credit unions andbanks, Congress is revisiting the subject. The House FinancialServices Committee's Subcommittee on Financial Institutions held ahearing on the issue on Feb. 18.

At that session, Allied Credit Union President/CEO Frank Michaelsaid that the Fed's rule would cause his and other credit unions tolose money on every transaction and cause an overall loss to creditunions of $1.6 billion.

The subcommittee is scheduled to hold a hearing on the impact ofthe entire financial overhaul bill on small financial institutionson March 3. Representatives of CUNA and NAFCU have been invited totestify.

Even if the House takes action to delay the implementation, itsfate in the Senate is less clear. Lobbyists for CUNA and NAFCU saidseveral members of the chamber have expressed support for theirposition, but it's not clear if there is enough support to get theSenate to act. Senate Banking Committee Chairman Tim Johnson(D-S.D.) voted against the Durbin amendment last year.

Although the NCUA has been mostly silent on interchange, on theeve of the Feb. 18 House subcommittee hearing, NCUA Chairman DebbieMatz wrote Bernanke and urged him to ensure that smallerinstitutions are protected in any rule on interchange.

She urged that the rule contain a “meaningful exemption” forsmaller institutions. She also said that those institutions shouldbe exempt from fee limits and the requirements related to networkexclusivity and routing restrictions.

While Matz and the trade associations focused on the bigpicture, several credit union executives highlighted how the rulewould impact the products and services they will offer theirmembers.

“While merchants will improve their bottom line, financialinstitutions of all sizes will have to recover lost revenues withhigher consumer fees. We are even considering eliminating checkingaccounts all together,” HALLCO Community Credit Union President/CEOJoe Foster wrote the Fed.

Air Force Federal Credit Union Vice President April Mannexpressed concern that even if the Fed mandates that paymentnetworks have a two-tiered payment schedule based on the size ofthe institution, smaller institutions could be hurt.

“The networks could choose to dramatically decrease the currentinterchange rate for smaller users. The networks may do thisbecause of pressure from the merchants and/or because of pressurefrom large issuers to do so,” Mann wrote.

The merchants were equally strong in stating the benefits tothem and their customers from the changes proposed in the rule.

Dennis Curtin, public relations manager of Weis Markets, wrotethe board that debit swipe fees totaled $14 million last year andthose were paid by their customers.

He added that the new rules could potentially give customers ofthe 164-store Pennsylvania-based chain “millions of dollars ofrelief” during a period of high unemployment and low consumerconfidence.

According to the proposed rule, the allowable costs forinterchange would be limited to no more than the issuer's allowablecosts divided by the number of electronic debit transactions onwhich the issuer received or charged an interchange transaction feein the calendar year. Or the issuer could receive debit interchangecapped at 12 cents per transaction.

Comments on the Fed's proposed rule were due on Feb. 22. UnlessCongress acts to delay the implementation, the rule must beapproved by April 21 and in effect by July 21.