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NCUA should revisit interchange cost estimates CUNA
ALEXANDRIA, Va. (5/5/11)—The Credit Union National Association (CUNA) backed the National Credit Union Administration’s (NCUA) request that the Federal Reserve consider “the unique circumstances of smaller credit unions" and grant some interchange fee cap relief to smaller issuers, but also noted that it found the agency’s estimates of debit card transaction costs for larger issuers, as detailed in a Wednesday letter to the Federal Reserve, to be “incredibly understated.” The NCUA yesterday provided additional information about some of the costs associated with and income produced by debit card transactions for credit unions of different sizes when it released results of a survey of 296 credit unions. The survey, which was included in the agency’s letter to the Fed, estimated that credit unions with over $1 billion in assets spend a median amount of two cents per debit card transaction while taking in a median gross income total of 38 cents per transaction. CUNA challenged this conclusion, saying that “significant, essential” internal and/or indirect costs such as labor, equipment, overhead and fraud prevention are not included in this estimate. CUNA also noted that the agency did not include many of the direct costs that the Fed included in its own interchange fee analysis. “Basic amounts paid to third parties for clearing, settlement and authorization amount to far more than the values reported by NCUA in the letter,” CUNA said. It is inconceivable that the median cost at the largest credit unions--those with a median asset size of $1.6 billion--is only a third to a sixth of the average cost at banks with more than $10 billion in assets, CUNA added. “We question the methods used to derive these numbers and urge NCUA to revisit and revise them as soon as possible,” CUNA said. Overall, the NCUA’s analysis found that the smaller the credit union is, the more likely it is that that credit union would lose money on debit card transactions. The NCUA again asked the Fed to ensure that a planned interchange fee cap exemption for credit unions with under $10 billion in assets will work as planned. The NCUA's analysis found that "direct costs per transaction do not fall below the proposed cap until credit unions reach $100 million to $500 million in assets." Credit unions with $10 million or less in assets pay a median cost of 31 cents per debit transaction. Credit unions with $50 million to $100 million in assets pay a median cost of 19 cents per transaction. The NCUA said that these costs "significantly exceed the maximums allowed under the proposed rule," which could set the interchange fee cap at a maximum of 12 cents per transaction. The NCUA acknowledged its cost analysis "likely understates costs for debit card transactions" and was limited to a portion of the total costs of providing debit services. It excluded all "labor, facilities, equipment and other overhead costs," and it appears NCUA considered only a subset of the fees that credit unions pay to third parties in the provision of debit services. For the full letter, use the resource link.
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