WASHINGTON — Interchange is the tip of the regulatory burden iceberg.
That was the message that representatives of CUNA and NAFCU conveyed during their testimony before a House subcommittee last Wednesday. They indicated that if credit unions don’t get regulatory relief, it will hurt their ability to serve members.
The Federal Reserve’s proposed rule limiting debit interchange fees was the major topic in the testimony of all the witnesses, who represent an array of small financial service providers. But all the witnesses made sure to raise other points as well.
Gerber Federal Credit Union President/CEO John Buckley told the panel that his institution stands to lose $210,000 per year if the Federal Reserve's proposed debit interchange rule is implemented. He also said the rule would result in many credit unions eliminating free checking and charging fees for debit cards.
Buckley’s credit union, which has 13,400 members, is headquartered in Fremont, Mich., and has assets of $114 million.
CUNA President/CEO Bill Cheney said the differentiation between large and small financial institutions is essentially meaningless. He also said under a worst-case scenario, credit unions could lose $1.5 billion in revenues.
During the hearing of the House Financial Services Committee’s Subcommittee on Financial Services and Consumer Credit, Rep. Jim Renacci (R-Ohio) asked what would be the impact be on low-income members.
Buckley, testifying on behalf of NAFCU, said 40% to 50% of his credit union’s members are low or moderate income, and the credit union might not be able to offer them the same level of service. He also said the credit union’s bottom line could be hurt because his credit union can’t make up the revenue by raising supplemental capital.
In response to a similar question from Rep. David Scott (D-Ga.), Cheney said any costs would have to be passed on to credit union members, and "this will drive people out of the banking system."
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.
Unless Congress acts to delay the implementation, the rule must be approved by April 21 and in effect by July 21.
On other issues, Buckley used his oral testimony to urge the lawmakers to vote to delay the implementation of certain rules and index the monetary thresholds in the financial overhaul bill for inflation. He also advocated expanding the Financial Stability Oversight Council’s ability to veto certain proposed regulations issued by the new Bureau of Consumer Financial Protection, which is scheduled to begin operating this summer.
In written testimony, Buckley wrote that credit unions at a loss on why they face additional regulations that will be issued by the new bureau since their practices didn’t cause the financial crisis.
Cheney also called for raising the cap on member business lending and urged the lawmakers to "peel back decades of outdated and burdensome regulations."
He told the lawmakers that "you cannot simplify regulations by creating new rules." Cheney also urged the lawmakers to change the law to allow credit unions to raise supplemental capital that counts toward the prompt corrective action net worth requirements.
Kalamazoo County (Mich.) State Bank President/CEO Jim MacPhee asked the lawmakers to give prudential regulators more input into the Bureau of Consumer Financial Protection’s rule making process.
MacPhee, who represented the Independent Community Bankers of America, also urged regulators to not define a "qualified residential mortgage" too narrowly because it could drive thousands of community banks and other lenders from the residential mortgage market. In addition, he asked that portfolio loans held by banks with assets of less than $10 billion be exempt from a new requirement that first-lien mortgage lenders establish escrow accounts for the payment of taxes and insurance.
Albert C. Kelly Jr., chairman and chief executive officer of SpiritBank in Bristow, Okla., said the total cost of regulations, ranging from interchange to the new Bureau of Consumer Financial Protection, threatened the livelihood of many small banks. And he noted that these banks are the lifeblood of their communities.
"The cumulative burden of hundreds of new or revised regulations may be a weight too great for many smaller banks to bear," said Kelly, who testified on behalf of the American Bankers Association.