New rules on debit interchange fees could hit Americans’ wallets

Bill Cheney President and CEO, National Credit Union
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Late last week, 13 senators signed and sent a letter to Federal Reserve Board Chairman Ben Bernanke. The letter wasn’t about headline-dominating issues of interest rates, deficit reduction or extending the Bush tax cuts. The letter cautioned Chairman Bernanke about action he and his fellow Federal Reserve Board of Governors are scheduled to take this week — which, if not done properly, will have a troubling impact on the wallets of millions of consumers across the nation.

Thursday, the Federal Reserve Board is scheduled to consider proposed rules on debit interchange fees — the fees that go to debit-card issuers. Under a new law passed by Congress this year, the Fed is required to issue regulations related to the price of debit interchange so that the price is “reasonable and proportional” to the cost of the transaction. In other words, point out the group of senators — eight Republicans (including the ranking member of the Senate Banking Committee) and five Democrats — the government will be setting the amount of the fee, not the free market.

Beyond that, the bi-partisan group of senators point out two other key issues. First, although the change in the law was presented to Congress as a “pro-consumer” measure that would save consumers money, there is no guarantee that will be the case. In fact, the senators point out, “analysts’ reports for retailers likely to be affected by the provision make no mention of any benefits to consumers. Related to this, many predict that consumers will be faced with additional bank fees as the rule is implemented.”

Second, although the law seemingly excludes small institutions — such as credit unions — from its requirements, the senators point out that the law will likely have just the opposite effect. They stated their concern that the new law “will make small bank and credit union debit cards more expensive for merchants to accept than those issued by larger banks and would likely put them at a disadvantage compared to large issuers.” They added that regulating interchange rates of really big banks will only “force smaller institutions to lower their prices as well in order to remain competitive.”

But lower prices won’t pay the freight for credit unions of offering their members debit cards — somehow, the costs of these programs must be paid. And where will that come from?

The wallets and pockets of the nation’s consumers, including the 92 million who are members of credit unions.

The 13 senators — Evan Bayh, Robert Bennett, Sam Brownback, Tom Carper, Chris Coons, Bob Corker, Mike Crapo, Judd Gregg, Pat Roberts, Richard Shelby, Jon Tester, David Vitter, and Mark Warner — close their message to Chairman Bernanke with a simple request: Take the time to consider all implications of this ratemaking rule, especially the impact it will have on consumers as well as institutions under $10 billion, and exercise the discretion granted to you to minimize negative consequences.

America’s credit unions stand with the senators and their request, for the sake of their members and all consumers who ultimately will bear the cost of these changes.

And, credit unions thank the senators for having the foresight and thoughtfulness to reach out to the Fed policymakers.

Bill Cheney is the president and CEO of the Credit Union National Association (CUNA).