Credit unions and other debit issuers with assets of less than $10 billion would have been better off under the Federal Reserve's new proposed rule on debit interchange if the rule's underlying law had not granted them a supposed exemption.
Illinois Democratic Senator Richard Durbin sold the idea of regulating debit card interchange by claiming the rule would impact only large issuers. The measure would exempt issuers of less than $10 billion in assets from the impact of the rule, leaving their debit card interchange unchanged, he argued, and limiting the debit card interchange of issuers with more than $10 billion in assets.
But in reality all the exclusion has done is prevent the Federal Reserve from taking small issuers' costs of debit issuing into account when it came up with proposed debit interchange cap. Because issuers with less than $10 billion in assets were not supposed to be covered by the proposed rule, the Federal Reserve did not survey any about their actual costs of debit card issuing-even though those costs are a good deal higher than larger debit card issuers.
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Thus a measure sold as protecting credit unions from the worst effects of a government regulation aimed at large banks has instead ensured they face an interchange cap far below their actual costs of issuing.
In short, the $10 billion asset exemption has brought about the very outcome it was expected to avoid. Credit unions and other debit card issuers now face a debit interchange rule which will have a significantly greater impact on their incomes than if they had not had the $10 billion asset exemption because, without the exemption, the Federal Reserve would have been forced to take into account their debit issuing costs as well as those of the issuers with more assets.
Check out a previous Credit Union Exchange guest blog entry on interchange.
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