MADISON, Wis. (1/14/11)--Credit union leagues have begun to weigh in on the interchange proposal from the Federal Reserve. The interchange proposal presents a formidable challenge for credit unions, which are smaller than many banks and do not have multiple lines of business from which they can create additional income (Finance & Commerce
Jan. 12). “Our members’ ability to generate revenue is pretty challenged,” said Mark Cummins, president of the Minnesota Credit union Network, who was featured in the article “Now our ability to offer free checking accounts, which are critical to us, are under threat. Losing revenue like this is potentially huge for our members.” Cummins said many credit unions also suspect that the duel-pricing platform that Visa has proposed will not be in place for long. “Small institutions generate a small part of overall fees,” Cummins said. “The marketplace will be driving this, and we wonder if it’s really practical to believe they’ll keep a second tier of pricing for these small institutions.” Jim McCormack, president/CEO of the Pennsylvania Credit Union Association, said that Visa’s two-tier proposal fails to resolve many issues associated with interchange. “Creating a two-tiered system could be harmful to credit unions, resulting in higher fees and shift[ing] costs to consumers,” McCormack said in a press release Wednesday. “Creating classes of issuers within the network is likely to lead to preferentialism and discrimination. While the legislation exempted financial institutions under $10 billion--the majority of all credit unions--the Federal Reserve’s proposal is not as clear.” Paul Gentile, president of the New Jersey Credit Union League also made note of the lack of clarity in the Fed proposal in the league’s newsletter (The Weekly Exchange
Jan. 6). “While the proposal does reference an exemption from interchange rate setting for small issuers with $10 billion or less in assets, it does not include provisions to enforce the exemption,” Gentile said. “Without enforcement, the exemption will likely prove meaningless, and from a practical standpoint small issuers will end up being subject to the same rate setting as large issuers. It is vital that credit unions participate in this effort to reinforce to the Fed the importance of getting this proposal right for the future of credit union debit card programs.” The Fed proposal remains open for public comment until Feb. 22. The Ohio Credit Union League has put together the following “game plan” to mobilize credit unions in that state ( eLumination Jan 12):
* Create an interchange work group of credit union executives; * Assess the financial impact on Ohio credit unions and their members; * Produce an official league commentary on the Fed proposal; * Produce strong grassroots efforts by Ohio credit unions to comment on the Fed proposal; * Stage a congressional campaign to prepare for legislative solutions; * Host a statewide conference call to solicit input from credit union executives; and * Evaluate product and pricing alternatives for future consideration by credit unions to restore interchange-vulnerable income.
The Credit Union National Association has said that that the pending interchange fee rule changes will create issues for both credit unions and their members, as well as consumers in general, whether a two-tier fee system is followed or not. Overall, smaller institutions such as credit unions could lose revenue due to the interchange changes, a circumstance that may force credit unions to increase member fees or reduce the amount of services they offer to those members, CUNA has said (News Now