CLEVELAND, Ohio, and BURLINGTON, Vt. (6/28/10)--Credit unions were in the media last week in Ohio and Vermont, discussing the impact of the interchange amendment to the financial regulatory reform act that survived the conference committee in Congress. Their conclusion: the amendment will cut into their income and force them to cut services, according to Crain's Cleveland Business (June 21). John Magill, senior vice president for legislative affairs at the Credit Union National Association, noted in the article that retailers pay roughly 1.5% of a purchase in interchange fees. Part of the amount goes to the issuer (credit union), some goes to the card processor (such as Visa) and the rest is kept by the retailer. The fees pay for maintenance of the card system, raud and other losses. Under the amendment, fees would be slashed to cover the cost of only the transaction. Magill estimated the interchange amendment could cost credit unions between $35 and $50 per card per year. Crain's interviewed seven credit unions in the Cleveland area. Russ Fisher, CEO of the $21 million asset PEF FCU, Highland Heights, Ohio, told Crain's Cleveland Business (June 21) that his credit union collects about $3,000 a month in interchange fees. "Because we're so small, we don't have other sources of income that can easily absorb interchange fees," he said in the article, adding, "This is big." At least 500 of PEF FCU's 2,500 members have debit cards. Fisher said he worries the credit union will lose members if the debit card convenience is removed. "It puts us at a disadvantage [vs. banks]," he told the publication. Most credit unions that offer both credit and debit cards said they make a slight profit on credit card offerings but just break even on their debit cards. For Ohio Educational CU, Cleveland, interchange fees are about 5% of total gross revenue or $380,000 a year, said CEO Jerome Valco. Roughly 17% of income at Eaton Family CU, Euclid, comes from fees for debit and credit cards, said Mike Losneck, CEO, who predicted the amendment's impact would be "pretty significant." Loss of fees would inhibit the credit union's ability to pay members a dividend and might end free checking and free debit cards. At Cleveland-based Faith Community United CU, CEO Rita Haynes told the publication merchants should take responsibility for fraud and other costs of doing business with plastic. "We could be locked out. They could just not accept our debit cards." Community United CU, Strongsville, CEO Julia Gee said the amendment would mean re-evaluating the credit union's fee schedule or offering less favorable loan rates to keep debit cards as an option. In Vermont's Times Argus (June 25), Joe Bergeron, president of the Association of Vermont Credit Unions, said that the carve-out provision, which exempts financial institutions with less than $10 billion in assets, is well-meaning but puts credit unions and community banks at a disadvantage. "There's nothing in the wording of the legislation that would mandate Visa and MasterCard to have a two-tiered system like that, a different system of interchange rates [on debit card fees] for institutions under $10 billion versus those over $10 billion," Bergeron said in the article. What like will happen, he said, is that smaller banks and credit unions will see the fees they receive from MasterCard and Visa reduced, and that would force credit unions to pass on higher costs to their members. For the entire articles, use the links.