The Senate came back last week and didn’t take up legislation to delay the delayed implementation of the Federal Reserve’s rule regulating debit interchange rates. But the NCUA and trade groups weighed in again about the impact on small issuers.
Andrea Heller, a spokeswoman for Sen. Jon Tester (D-Mont.), the lead sponsor of a bill to delay by two years implementation of the Fed’s rule, said Tester is still working with his colleagues to find an appropriate bill to which he can attach his amendment. She said that while there is growing support for the measure, she declined to say how many votes it is likely to get nor did she say whether there were the 60 votes lined up that would be needed to stop a likely filibuster by opponents.
A similar bill has been introduced in the House, but it is likely to wait for Senate action before taking up the measure, said Rep. Shelley Moore Capito (R-W.Va.) the measure’s key sponsor.
The Federal Reserve still hasn’t issued a final rule, though it is supposed to take effect on July 23. The NCUA and CUNA sent letters to the Fed last week, urging Fed Chairman Ben Bernanke to do more to protect small issuers.
Citing data compiled by her agency, NCUA Chairman Debbie Matz wrote that for federally insured credit unions with assets of $100 million or less that issue debit cards, the interchange costs exceed the maximum allowed under the Fed’s proposed rule.
She noted that because of this, the Fed should modify its proposed rule to "take into consideration the unique circumstances of smaller credit unions."
Matz wrote Bernanke that that the median cost per transaction was 31 cents per transaction for credit unions with assets of $10 million or less and 19 cents per transaction for credit unions with assets between $50 million and $100 million. And direct costs don’t fall below the proposed cap until credit unions reach the $100 million to $500 million asset range. According to NCUA data, the median cost for those credit unions is 8 cents per transaction.
She also submitted a chart that showed that as of the Call Report data through the end of March, 181 federally insured credit unions had a net positive interchange income and 111 had a net negative interchange income.
NAFCU took issue with the agency’s contention that the proposed rule wouldn’t hurt credit unions with more than $500 million in assets.
NAFCU President/CEO Fred Becker wrote Matz that the agency "did not take into consideration fraud costs, labor costs, facilities, equipment and other overhead costs. In fact, during the survey process, one of our members informed us that they did not believe NCUA was asking the right questions to correctly determine the cost of interchange."
He reiterated the association’s opposition to separating credit unions by size and contended that the "proposed price caps are bad public policy for all credit unions."
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.
In his letter to Bernanke, CUNA President/CEO Bill Cheney noted that while Congress required the Fed to prescribe rules regarding these provisions, there is no specific deadline for them to take effect. By contrast, Cheney noted, the law requires the provisions regarding rate standards to take effect by July 21.
"Delaying the effective date of these provisions would not undermine merchants’ ability to pay lower fees to large issues. Such a delay would, however, allow time for the exemption to work for small issuers, as Congress intended, without any group of issuers," Cheney wrote.
Becker and Cheney both wrote lawmakers urging them to support a delay of the Fed’s rule, emphasizing the negative impact on small issuers.
However, a coalition of retailers disputed that argument in a letter to Congress. The Merchants Payments Coalition noted that its members have "no contractual or practical ability to treat debit cards issued by small financial institutions differently than those issued by large institutions."