WASHINGTON (5/2/12)--While the Federal Reserve's study of the impact of the debit card interchange fee cap suggested that smaller issuers have only seen modest changes in their rates, Credit Union National Association (CUNA) President/CEO Bill Cheney said "the jury is still out" and credit unions continue to be concerned that market forces will ultimately drive down the fees that the exemption for smaller institutions is intended to protect.
For a CUNA summary of the Fed survery report, use the resource link below.
The survey, which was required by the Dodd-Frank Wall Street Reform and Consumer Protection Act and is intended to help the regulator monitor the interchange rule's impact on markets and the effectiveness of the interchange fee limitation exemption for small issuers, found that:
- 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;
- The average interchange fee charged by financial institutions that are subject to the cap was far lower in that time period, totaling 24 cents per transaction; and
- The average interchange fee in 2009 was 43 cents.
The Fed reported there were 46.7 billion debit card transactions in 2011, with a value of more than $1.8 trillion. This total was a 24% increase from 2009's transaction total of 37.6 billion, and a 27% increase from the amount of interchange income tallied in 2009, $1.4 trillion, the Fed added.
The survey collected data on all costs associated with debit card programs and debit card transactions from card issuers and payment network representatives.
The surveys are intended to compile aggregate or summary information concerning the costs incurred, and interchange transaction fees charged or received by issuers or payment card networks in connection with debit card transactions.
Overall, Cheney said, it would be a mistake to read too much into the results of Federal Reserve's debit card interchange fee survey.
The debit interchange fee cap regulations, which became effective last fall, limit debit interchange fees for issuers with assets of $10 billion or more to 21 cents, and allow an additional five basis points per transaction to be charged to cover fraud losses. 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.
Cheney on Tuesday noted that the debit fee regulations do not require card networks to maintain a two-tiered system; they do so only at their discretion. And secondly, it is too soon to tell whether the routing and exclusivity provisions that dictate the use of PIN or signature networks will over time undermine any two-tiered interchange fee structure by driving small-issuer rates toward the large-issuer cap.
The routing and exclusivity provisions in the interchange regulation have only been in effect since April 1, and the Fed survey only covers the fourth quarter of 2011, he also noted.
For more on the Fed survey, including CUNA's summary, use the resource links.