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Interchange cap not helping consumers CUNA trades
WASHINGTON (9/24/12)--With the one-year anniversary of debit interchange fee cap implementation approaching on Oct. 1, the Credit Union National Association (CUNA) and finance industry partners in a letter to Congress noted that "there is no evidence that consumers are seeing lower prices" on retail goods, a direct contrast from what they were promised by merchants.

"Despite promises by retailers, and despite a realized $8 billion windfall by these retailers over this past year, consumers have yet to see discounts for using their debit cards at the register," the letter said.

Credit unions and community banks are also being harmed by the regulation. The letter noted a U.S. Government Accountability Office (GAO) study released last week which found smaller community banks and credit unions, which were supposed to be "exempted" from the fallout of this legislation, have instead seen interchange revenue decreases of 5% in the first three months following interchange fee cap implementation. (See related News Now story: Dodd-Frank could mean mortgage costs for CUs: GAO)

Community banks and credit unions are struggling to maintain viable debit programs, and have had to raise their fees in some cases, the letter noted. "The GAO further concludes that even more harm to community banks and credit unions is likely as the marketplace evolves," the letter added.

The Federal Reserve Board's final rule implementing the interchange law capped large issuer debit interchange fees at 21 cents. An additional five basis points per transaction may be charged to cover fraud losses, and an extra penny may be charged by financial institutions that are in compliance with established fraud prevention standards. Most credit unions are exempt from the fee cap.

The GAO report does not address any fee changes that occurred after network exclusivity and routing provisions took effect in April 2012. These provisions require financial institutions to enable their debit cards with two unaffiliated payment card networks, and this change "will likely cause even more substantial reductions in interchange fees to exempt issuers," the letter said.

Any further interchange regulations are "not only unnecessary, but an insult to consumers throughout the country," the letter said in closing.

The letter, which was sent to Senate Majority Leader Harry Reid (D-Nev.), Senate Minority Leader Mitch McConnell (R-Ky.), Speaker of the House John Boehner (R-Ohio) and House Minority Leader Nancy Pelosi (D-Calif.), was co-signed by the American Bankers Association, Independent Community Bankers of America and the National Association of Federal Credit Unions.

For the full letter, use the resource link.

According to a May Fed survey, the average interchange fee received by credit unions and other debit card issuers that are exempt from the Federal Reserve's debit interchange fee cap was 43 cents per transaction in 2011. (See May 2 News Now story: Despite Fed survey, jury out on interchange impact: CUNA)
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