HONG KONG -- A cap on card interchange similar to one promotedby some U.S. retailers has turned Australian CU card programs frombeing contributors to their bottom lines to net money losers.

Australian credit union executives attending the 2008 WorldCredit Union Conference reported that the interchange cap hasforced them to begin charging fees to cardholders. This has led toreduced card usage and has pushed them to begin charging fees forother CU services that the card interchange previouslysupported.

The only group that has benefited from the interchange cap havebeen Australian retailers, the executives said, whom they chargedwith substantially pocketing the interchange cost reduction.According to the CU executives, they have not passed the savings onin any meaningful or sustained way to consumers, despite thatconsumer savings was cited as a primary reason for the cap.

The Australian credit union executives largely validated thedire predictions of the impacts of a card interchange cap in theU.S., should the U.S. Congress ever put one into place, saying thatthe severe cuts in interchange income threatens to stall the movefrom the use of cash and checks to cards.

"With the cost of fraud and other card costs the cards don'treally pay for themselves anymore," explained Phylip Doughty, CEOof MECU Ltd., Australia, the largest credit union in the state ofVictoria. "We haven't done it on credit cards yet, but we aremoving toward putting fees in place for using the cards." Doughtysaid the CU has already put a fee schedule in place for use ofdebit cards at points of sale and ATMs.

Doughty also explained that retailers will give a lower pricefor using cash if consumers ask for it but don't remind them thatthe lower price is available.

"Many people who might be buying a big item might ask for thelower noncard price, but if they are just buying something small,they will still use their cards and just not take the price breakthat they could because who is going to bother to ask for it," hesaid.

Doughty said retailers have effectively begun surcharging forusing cards so that an item priced at A$1,000 could lost as littleas A$970 if the consumer paid with cash and as high as A$1,030 forsome cards. Using Diners Club or American Express cards can bringan even higher cost, he explained.

Glenn Sargeant, executive manager for finance, with the TeachersCredit Union headquartered in Silverwater, New South Wales, backedhim up.

Sargeant said that the loss of the credit card interchange hasmeant that the CU has had to start charging fees for cards, ATMsand others. The CU even started charging for rewards programswhich, in turn, cut down on the programs and the card use.

He also seconded Doughty's observations about retail behavior,saying that it appeared that gas stations were the only retailersto have really let consumers know they can spend less money byusing cash.

"From our perspective a lot of the card reforms have been a realboondoggle for the retailers," Seargent said, "even though theretailer had good intentions in putting them into place."

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