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Cheney voices interchange concerns on
WASHINGTON (5/25/11)—The Credit Union National Association (CUNA) continues to advocate for a delay in the implementation of the Federal Reserve Board’s debit interchange fee rate cap, most recently via an interview with CUNA President/CEO Bill Cheney published this week in’s Banking Blog. Overall, Cheney said that while some aspects of the debit card interchange fee market need to be reformed, the Fed’s proposed solution is flawed and will harm both consumers and credit union debit card issuers. The Fed’s proposed interchange regulations could limit debit card swipe fees to as little as seven to 12 cents per transaction. A proposed exemption for issuers with under $10 billion in assets is included in the proposal. Cheney said that this carveout would not work as planned. While the exemption would allow smaller institutions to charge higher rates for the convenience of accepting debit cards, Cheney said that a two-tiered debit fee system won’t work in practice. CUNA maintains that merchants would reject a two-tiered system and credit unions would incur significant losses on every debit card purchase made by a consumer. Cheney also predicted credit union debit cards could face discrimination in practice--that larger institutions could “use their marketing clout and greater resources” to convince merchants to accept bank debit cards over credit union-offered cards. These factors would likely result in credit unions losing money on their members’ debit card transactions, Cheney noted. That in turn would force credit unions to raise fees charged members to offset the lost revenue. The proposed 12 cent limit would not be adequate to cover the expenses associated with providing debit card accounts, he added. Another issue of concern to credit unions is potential damage they could face from routing provisions of the regulation. Credit unions are currently allowed to choose their own payment network, but the Fed proposal would force financial institutions to offer multiple transaction routing options to merchants. Cheney said that this change, which has no small institution exemption, would “cost credit unions and cripple their ability to be competitive.” For the full blog post, use the resource link.
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