Comment letters, congressional testimony and in-person visits with lawmakers in Washington are key components of a concerted strategy to kill, delay implementation of or at the least modify the Federal Reserve’s proposed rule on debit interchange fees.
CUNA wrote in its comment letter that the proposed rule would have a "significant adverse effect on and in some cases dire consequences" for the 70% of credit unions that offer debit cards, and that the Fed should work with Congress to delay implementation by two years to further study the issue.
NAFCU wrote that the proposed rule’s "supposed small issuer exemption is illusory" and won’t protect small issuers. NAFCU President/CEO Fred Becker wrote that the caps proposed by the Fed aren’t necessary in light of the fact that Congress only requires the Fed to establish standards for assessing whether the interchange fee is reasonable and proportional.
In addition to their own comment letters, CUNA and NAFCU signed on to a letter sent by nine financial services trade associations, including the ABA and the Independent Community Bankers of America.
In that letter, they contended that the rule would "disrupt a fully functioning market."
The position advocated by those groups got a boost during the Feb. 17 testimony before the Senate Banking Committee of Federal Reserve Chairman Ben Bernanke.
He said that "it is possible that exemption [for financial institutions with assets of $10 billion or less] may not be effective in the marketplace." And added that it is "possible that, in practice, they [smaller institutions] would not be exempt from the lower interchange fee."
Those messages and personal stories about the impact of restrictions on debit interchange fees on their bottom line will be reinforced when several thousand credit union executives and volunteers come to Washington for the Governmental Affairs Conference and hold meetings with members of their congressional delegation.
But those supporting the rule, or who want it stronger, aren’t keeping silent either.
National Retail Federation Senior Vice President, General Counsel Mallory Duncan wrote that Congress mandated that the Fed issue a rule because of a "notorious market failure. A failure exploited by the largest and most efficient financial institutions and networks to create a situation such that the citizens of the country who pioneered cost savings improvements in payment systems now pay billions of dollars more for access to those same accounts than when older, manual, far less efficient processes were the norm."
The amendment empowering the Fed to issue a rule on debit interchange was sponsored by Assistant Senate Majority Leader Richard Durbin (D-Ill.) and was included in the financial overhaul bill that Congress passed last year. As a result of intense lobbying by credit unions and banks, Congress is revisiting the subject. The House Financial Services Committee’s Subcommittee on Financial Institutions held a hearing on the issue on Feb. 18.
At that session, Allied Credit Union President/CEO Frank Michael said that the Fed’s rule would cause his and other credit unions to lose money on every transaction and cause an overall loss to credit unions of $1.6 billion.
The subcommittee is scheduled to hold a hearing on the impact of the entire financial overhaul bill on small financial institutions on March 3. Representatives of CUNA and NAFCU have been invited to testify.
Even if the House takes action to delay the implementation, its fate in the Senate is less clear. Lobbyists for CUNA and NAFCU said several members of the chamber have expressed support for their position, but it’s not clear if there is enough support to get the Senate 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 the eve of the Feb. 18 House subcommittee hearing, NCUA Chairman Debbie Matz wrote Bernanke and urged him to ensure that smaller institutions are protected in any rule on interchange.
She urged that the rule contain a "meaningful exemption" for smaller institutions. She also said that those institutions should be exempt from fee limits and the requirements related to network exclusivity and routing restrictions.
While Matz and the trade associations focused on the big picture, several credit union executives highlighted how the rule would impact the products and services they will offer their members.
"While merchants will improve their bottom line, financial institutions of all sizes will have to recover lost revenues with higher consumer fees. We are even considering eliminating checking accounts all together," HALLCO Community Credit Union President/CEO Joe Foster wrote the Fed.
Air Force Federal Credit Union Vice President April Mann expressed concern that even if the Fed mandates that payment networks have a two-tiered payment schedule based on the size of the institution, smaller institutions could be hurt.
"The networks could choose to dramatically decrease the current interchange rate for smaller users. The networks may do this because of pressure from the merchants and/or because of pressure from large issuers to do so," Mann wrote.
The merchants were equally strong in stating the benefits to them and their customers from the changes proposed in the rule.
Dennis Curtin, public relations manager of Weis Markets, wrote the board that debit swipe fees totaled $14 million last year and those were paid by their customers.
He added that the new rules could potentially give customers of the 164-store Pennsylvania-based chain "millions of dollars of relief" during a period of high unemployment and low consumer confidence.
According to the proposed rule, the allowable costs for interchange would be limited to no more than the issuer's allowable costs divided by the number of electronic debit transactions on which the issuer received or charged an interchange transaction fee in the calendar year. Or the issuer could receive debit interchange capped at 12 cents per transaction.
Comments on the Fed’s proposed rule were due on Feb. 22. Unless Congress acts to delay the implementation, the rule must be approved by April 21 and in effect by July 21.