Debit Card Steering Charge Likely a False Alarm
A California credit union's concerns that Los Angeles retailers may be steering their members away from using their credit union-issued debit cards appeared unfounded last week.
Robert York, CEO of the 13,000 member, $108 million California Bear Credit Union, Los Angeles, wrote an email on Nov. 18 to other California credit union CEOs reporting that some of the CU's members and employees had reported difficulty using their CU- issued debit cards. He said some retailers appeared to want them to use cards issued by larger banks for their purchases.
Credit unions have long worried about such possible steering after an amendment to last year's financial reform law went into effect. The Durbin amendment cut the amount of money retailers pay to large banks for transactions using their debit cards and exempted small banks and almost all credit unions from the cut.
Credit unions fought the amendment and, as part of the fight, suggested that retailers would seek to avoid paying a higher interchange rate for credit union and small bank debit cards by steering consumers to larger bank cards. York and the staff at California Bear wondered if the reports from the CU's members indicated that such steering was taking place were true.
York sent the email to see if any other CUs had seen the same thing and reported last week that California Bear had received no positive responses. Further, one of the retailers named in his email, the Regal Entertainment Group, parent company of Regal Cinemas, denied outright that it had been trying to influence debit card choice.
“Our policy is to accept any and all payment cards–regardless of issuer,” said David Ownby, chief financial officer at the Regal Entertainment Group. He also denied the company had a policy about refusing debit cards based on their date of re-issuance. “Remember that many of our employees are high school students and probably not in tune with card particulars. They simply swipe the card and wait for an accept/decline signal from our credit card processor,” he added.
The other retailer York mentioned in the email, LA Fitness, a chain of fitness and health centers, did not respond for comment about the question.
Craig Shearman, vice president of government relations for the National Retail Federation, declined to comment on the specifics of York's email but pointed out that card economics made the allegations doubtful.
“Most consumers might have a number of different credit cards in their wallets or purses but usually only one debit card,” he remarked. “So if a retailer was going to try to steer a transaction to a different card that would most likely be a credit card where the swipe fees are higher.”
CUNA set up a website to help credit unions report possible incidents of debit card steering, but a CUNA executive said that the association has not seen many examples of the practice that it could authenticate. As others had, the executive reported that most problems found so far had turned out to be card processing mistakes more than steering.
But the executive said that CUNA would maintain its reporting site since the possibility of steering remained.