A CUNA survey of some of its member credit unions suggests credit unions with less than $10 billion in assets have begun to take a hit to their debit card interchange even though they were not supposed to feel the impact of a debit interchange cap.
Passed as part of the Dodd-Frank financial reform act, the so-called Durbin Amendment, named for its chief sponsor Illinois Senator Richard Durbin (D), capped interchange for debit card issuers with more than $10 billion in assets, but was supposed to exempt debit card issuers of fewer than $10 billion. Only four credit unions have assets of more than $10 billion and thus have their debit interchange capped by the rule, though several others seem likely to pass that threshold this year.
To help facilitate the exemption, the large card brands and card processors widely implemented a two tier interchange schedule which set one payment rate for institutions which are covered by the cap and another for institution, largely community banks and most credit unions, which are not.
However CUNA's survey, which included data from between 120 and 130 voluntarily participating credit unions, suggested that the exemption has not proved effective at protecting debit interchange income for credit unions not covered by the cap.
The participating credit unions shared data from the first quarter of 2010, before the cap was implemented, through the third quarter of 2012, the first full quarter where the cap the completely implemented, according to CUNA Chief Economist Bill Hampel.
The data showed that when it came to debit transactions which are validated by the cardholder's signature, the cap was effective as interchange income for those transactions remained steady and the volume of those transactions grew, Hampel said.
But interchange income for debit transactions which are validated by a personal identification number dropped in the data by roughly 6%, Hampel reported, suggesting that the exemption was not as effective at protecting income from those transactions.
Hampel said the association did not yet have enough data to be able to tell whether this represented a one time drop in debit interchange as an impact of the introduction of the new system or was the first quarter of a longer trend. More data would also allow the association to look more closely at what might be causing the drop.
Hampel said the association anticipates releasing a full report about the study next week.
Possible causes for the debit interchange drop might include the chance that the Durbin Amendment's requirement that debit card issuers have two unaffiliated debit processing networks available for each transaction might mean that PIN debit transactions are now being routinely routed through the network that brings the least interchange. Another possible cause for the drop may lie in an industry wide decline in PIN debit rates as card processing networks begin to compete more vigorously for retail clients.