5 Networks Say They Will Implement Two-tier Interchange System (Misc News: March 2, 2011)
The NACS, the Association for Convenience and Fuel Retailing, reported Wednesday that five major networks have announced that they will implement a two-tiered interchange system so that transactions from credit unions and small banks will be processed at their current swipe fee rate. But on Tuesday, U.S. Rep. Ed Royce, R-Calif., told the CUNA GAC audience that the Federal Reserve Board's proposed interchange feed rule has left small financial institutions "holding the bag."
“The interchange reform law seeks to bring reasonable regulation to the debit interchange system while preserving the ability of small banks to compete in the debit card market. Multiple networks have confirmed what I have long argued: that small banks and credit unions will not be hurt by this regulation and will in fact see competitive advantages from it,” said Sen. Dick Durbin (D-IL), author of the debit interchange reform language, in a press release. “As the Federal Reserve moves toward final implementation of this law, it’s time to move past the misrepresentations and scare tactics and to recognize the strong pro-consumer and pro-competitive benefits of interchange reform.”
The so-called Durbin Amendment was part of the Dodd-Frank Wall Street Reform and Consumer Protection Act passed by Congress last summer.
Visa, Star, Pulse, Shazam and CU-24, which process an estimated 80 percent of PIN debit card transactions, have all committed to a two-tier system that will give banks and credit unions with less than $10 billion in assets higher debit interchange fees than the country’s biggest banks. The NACS, formerly the National Association of Convenience Stores, speculated that other networks are sure to follow their lead.
“Throughout the debate over how to responsibly rein in out-of-control swipe fees, the big banks and credit card companies have sought to scare small banks and credit unions into thinking interchange reform would hurt them. This news confirms what we’ve known all along: that this legislation will help, not hurt, small banks and credit unions in Vermont and throughout the country,” said Rep. Peter Welch, D-Vt., the leader of debit interchange reform efforts in the House. “Now that yet another swipe fee reform myth has been shattered, we must focus on implementing this new legislation quickly, so that consumers and small businesses alike can benefit from its much-needed protections.”
Royce said Federal Reserve Board Chairman Ben Bernanke has echoed the same concerns as the NCUA and the FDIC: that the exemption in the proposal for financial institutions under $10 billion in assets is unworkable.
"To ensure that small institutions are truly exempt, to ensure that fraud costs are truly accounted for, we have got to slow the process, study the issue and get this right in legislation," Royce said. "If we fail to do that, then the debit network is going to be weaker and small institutions are going to be at a disadvantage."
CUNA has called for a two-year delay of the rule for further study. The association has asked Congress to repeal the Durbin Amendment that made debit interchange law, but also asked the Fed to rewrite its rules if Congress doesn't repeal it.
Frank Michael, who appeared before the House Financial Services Committee last week on behalf of CUNA and his $18 million-asset credit union, Stockton, Calif.-based Allied CU, said that the interchange changes could mean increasing members' existing debit card fees or introducing new fees and lowering deposit rates.
He added that consumers could be harmed because many financial institutions may not be able to continue offering free checking accounts.