The interchange provision of the federal regulatory reform bill in Congress exempts small credit unions. But they would still be affected directly by how the Federal Reserve Board would proceed in setting rates in the next nine months, said a panel in a breakout session at The 1 Credit Union Conference, Monday, in Las Vegas.
In the session, "How Interchange Will Affect Your Credit Union," the panel included Stan Hollen, president/CEO of CO-OP Financial Services; Mary Dunn, CUNA associate general counsel; and Ryan Donovan, CUNA vice president of legislative affairs.
Donovan described the grassroots efforts credit unions conducted against the provision, which would allow the Fed to set rates for interchange transactions. The combined grassroots power of credit unions and community banks caught legislators off guard, he said.
“The provision was not envisioned as part of the regulatory reform bill, as initially envisioned by the Obama administration. It would be a shame if Wall Street's actions would result in legislation aimed at protecting the consumer, but instead resulting in the end of free checking and transaction fees," he said.
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The grassroots operation delivers three messages, he added:
- Congress has not thoroughly studied the provision;
- The interchange provision will have a disproportionate effect on small issuers; and
- Consumers lose if the measure is enacted.
Hollen praised CUNA for its role in negotiations on the provision. "The positive changes that occurred in the negotiations were not made by the banks or payments network associations," he said, noting that "CUNA made the right decision" in opposing the bill.
Credit unions will need to manage their interchange income by increasing the penetration of accounts, by offering free analytics to encourage more members to use debit cards, and reviewing the value of point-of-sale networks. "If you use multiple channels, the merchant will pick the lowest-cost channel," Hollen told the group,
Dunn noted the provision would change the way interchange is dealt with for the first time. "It exempts small issuers (such as credit unions) but it doesn't exempt small issuers from the impact of regulation," she told session attendees.
Areas to be regulated include interchange rates; rules to prevent the evasion of the amendment, which could "hurt or help us"; fraud-related standards; network fees; and exclusive arrangements, Dunn said.
The Fed would set the rates for large issuers and is not required to write rates for small issuers, but the deadline facing the Fed will make sure it looks only to large issuers. The Fed doesn't have to set the fees but must make sure rates set by the networks are reasonable and proportionate, Dunn noted.
CUNA and the leagues are addressing the issues, encouraging supportive statements from key lawmakers, meeting with the Fed, studying possible litigation, expanding CUNA's Working Group on the matter, and working with partners.
CUNA will ensure the exemption is meaningful and that it avoids unintentional consequences and preserves interchange income to the extent possible.