The following was taken from a Credit Union Advocacy website and represents the feelings of most credit unions quite well in regards to recent legislation passed by our Congressional leaders.
On the whole, credit unions have been generally supportive of the Wall Street Reform bill. Our goals throughout have been to ensure that the reforms did not impact our members since we did not cause the financial meltdown caused by a combination of reckless lending and investing.
However, interchange fees were not involved in any way in the financial meltdown, and should not have been included in the bill. This amendment to the overall bill was included in the bill at the 11th hour, and with no hearing, no study, and no debate on an extremely complex area of the financial sector.
To some degree we believe Congress tried to address our concerns. Congress recognized that this legislation was, in effect, a shot at the big banks. It was not intended to hit small issuers like credit unions which have the most consumer friendly options in terms of credit and debit cards. As a result there was an effort to exclude us from the impact of the legislation and to ensure our cards will not be discriminated against. However there are real doubts that the exclusion will actually work in the market place.
As a result, it’s difficult to know how the legislation will impact card programs at credit unions at this time. First, it has been made clear that Congress’ intention is that the measure not have a negative impact on credit unions. But in the realities of the marketplace, our programs could be hit hard. Interchange represents retailers’ share of the cost of the system. Without retailers picking up their fair share, our members will have to pick up the costs instead.
Basically, the measure gives retailers a break from paying their fair share of costs for a guaranteed payment. Instead consumers will be paying an additional cost for shopping – whether they shop or not – through the demise of free checking, increased fees, and interest rate changes.
Think of it this way. Credit unions are a “closed system” where we operate without capital from investors. We keep the lights on and our employees working through a mixture of interest, fees, and revenue from things like interchange. Since we are not for profits owned by the people who have accounts, we return any excess revenue to our owners through better rates, more locations, or additional services like free online banking. The revenue that could disappear from interchange will have to be made up elsewhere.
The law as it applies to interchange will take effect in one year, which gives the Federal Reserve a very short time frame to get rules in place and for the card companies to try to create a system that will allow 10% of the market to be “excluded.”
The big winners in this are huge retailers. Retailers will gain exclusively. There is no provision that retailers have to pass on savings to consumers. No retailer has committed to passing on savings; in fact they fought very strongly against us to make sure they weren’t required to pass savings on to consumers. Still, we doubt that people will stop or reduce their use of debit and credit cards. Again, it’s simply too convenient. Retailers don’t want the risk of checks (where they pay for losses) and will increasingly refuse to accept checks.
In this reform the big losers are consumers – financial institutions will now have to pass retailer’s costs directly onto consumers. Those fees will be hardest on low-income people. It’s terribly unfair that those individuals, who struggle to make ends meet, will be essentially carrying the load of huge big box retailers.
- Texas Credit Union League (Advocate Blog)
