WASHINGTON (6/18/08)—The CEO of a small Maryland credit union briefed a large group of Capitol Hill staffers Tuesday on just what the current system of interchange fees means to her cooperative and the negative impact government interference could have on her credit union and consumers. Cindy Prestandrea of Prince George’s Community FCU in Upper Marlboro told legislative staffers that interchange rates today are established “with a delicate balance in mind.” “Too low, and issuing institutions like my credit union cannot make ends meet. Too high, and merchants will refuse to accept the card,” Prestandrea said. The briefing was held amid anticipation that the House Judiciary Committee may vote next week on a bill that would enable the government to intervene in what is now a free-market process—setting the rate that a merchant’s bank pays a customer’s bank when debit or credit cards are used for purchases. A companion bill has been introduced in the Senate. All congressional staff were invited to attend the briefing, and the U.S. House and Senate Judiciary and Banking committees were heavily represented among the approximately 75 attendees. Prestandrea explained to the group that the balance to which she referred brings stability to the marketplace. “Merchants will argue about being able to ‘negotiate’ interchange,” she said, but she then asked the Hill staffers to picture her small credit union opposing some retail giant in an interchange “negotiating” session. “Being able to ‘negotiate’ assumes equal negotiating power or stature,” she said. She added tjat the same imbalance would exist between a large retailer and a three-person government tribunal, as envisioned in House and Senate legislation. Proponents such legislation sometimes claim the card fees are excessive. Detailing her own experience, Prestandrea said her Maryland credit union currently offers debit cards to members, but not credit cards because the administrative support for those is too high. “Credit card interchange couldn’t make it work for us given our size and resources,” she said, However, she added that her credit union would be harmed if it lost the fees associated with member debit card use, which represents 16% of monthly income. More generally, she said, interchange accomplishes three things for credit unions:
* It allows credit unions to compete with largest financial institutions; * It gives credit unions the ability to offer credit and debit products in relationships with members; and * Interchange revenue covers costs of system (fraud, overhead, etc.) for the credit union.
Also represented at the briefing were Visa, MasterCard and the Independent Community Bankers Association.