Time for CUNA to Come Clean on Debit Reform: Opinion
Earlier this year, the Credit Union National Association tried to tout a survey of its members to support the claim that credit unions have been hurt by debit swipe fee reform.
There is just one problem. It’s not true.
Since the Durbin Amendment was implemented on Oct. 1, 2011, three independent federal agencies—the Government Accountability Office, the Kansas City Federal Reserve, and the Federal Trade Commission—have found that banks exempt from new debit swipe fee rules, including all but three credit unions, have not been negatively affected.
This is fact, not spin. All you have to do is read the reports.
According to the Kansas City Federal Reserve, debit reform has had little, if any, impact on small bank revenues: “Regulated banks have seen their interchange fee revenues fall, while exempt banks’ revenues have remained roughly the same, on average.” (p. 108).
And, the report definitively counters predictions about what would happen under debit reform, noting “ . . . nearly all debit card networks have set separate interchange fees for regulated banks and exempt banks, creating a two-tier fee structure after the regulations took effect. The regulations forced the fees down for regulated banks, but the average fees for exempt banks changed little after the regulations took effect in the fourth quarter of 2011.” (p. 90).
Not enough evidence? How about the GAO:
“Unlike the large banks, community banks and credit unions generally have not, on average, experienced a significant decline in their debit interchange fees as a result of the Federal Reserve’s implementation of [debit swipe fee reform].” That’s on page 27 of the report which also points out that the post-Durbin fee structure works “to the benefit of exempt issuers.” In fact, aggregate swipe fee income reported by exempt banks increased consistently each quarter from the second quarter of 2011 through the first quarter of 2012. That’s on page 29 for everyone keeping score at home.
Still not convinced? Here’s what the FTC has to say: “interchange fees paid to exempt issuers are higher than those paid to non-exempt issuers.”
The FTC study includes the same CUNA survey data that the association says shows the exact opposite. That’s just not plausible, given the weight of evidence provided by GAO, FTC and the KC Federal Reserve. Scratch the surface of the CUNA data and there simply isn’t anything there. There isn’t even a full published report—only quotes and snippets in a handful of news stories.
The CUNA survey is not comprehensive and its analysis is questionable. In January, CUNA stated that between 120 and 130 credit unions participated in its survey. The association’s chief economist later admitted that 230 credit unions took part but data from only 155 was used. Why was nearly a third of the sample excluded from the analysis?
The CUNA survey doesn’t really look at the impact of debit reform on revenues. Such an assessment would require looking at quarterly revenues before and after debit reform. But the survey apparently only looked at two post-reform quarters, which showed revenue up in one and down in the other.
The only drop in debit swipe fee revenue reported by CUNA was about $1.38 million for all credit unions combined in the third quarter of 2012. That’s a total of about $8,900 per credit union. And, this was only a drop when compared to the second quarter of 2012—a quarter in which CUNA admits that swipe fee revenue increased for credit unions. CUNA didn’t even say whether that increase was more than the decrease in the next quarter. Regardless, it is far more likely that this drop is simply a normal quarter-to-quarter change in the business cycle that has nothing to do with swipe fee reform.
It’s time for CUNA to admit it was wrong. Debit reform has not brought gloom and doom to its members. In fact, credit unions are probably better off now than they were before because the playing field used to be skewed dramatically in favor of the big banks. The credibility and long-term interests of the industry would be better served by coming clean instead twisting data to deny the truth.
Doug Kantor is counsel to the Merchants Payment Coalition.