In music, a “coda” is “a passage at the end of a composition that brings it to a formal close.” For those of us who have been wrestling with the debit interchange issue for more than a year, the following is our coda on the issue—at least, for now.
On June 29, the Federal Reserve Board of Governors adopted its debit interchange final rule, described (by some) as “surprising” and by others as “infuriating.”
We were surprised the Federal Reserve’s final rule treated small issuers such as credit unions much better than its proposed rule. It includes provisions intended to reinforce the small-issuer exemption—which applies to credit unions and banks with less than $10 billion in assets—from the fee-setting, circumvention, and evasion aspects of the final rule.
And it gives more room on an interchange fee cap: 21 cents per transaction versus 12 cents, plus five basis points for every transaction and the hope of an additional penny (after a comment period) to cover costs related to fraud.
Still, that’s not enough to cover credit union costs; if “two-tiered” networks aren’t set up—or if they are but fail to work—credit union revenues will fall short. Member fees may be unavoidable as credit unions strive to maintain efficient debit card programs.
Despite that, the Fed offered up a final rule that was, on balance, less egregious than the proposal. With that, we learned some valuable lessons:
- The Fed listens. Retailers, who were “enraged” by the Fed’s final rule (according to some press accounts), claimed the banks hijacked the Fed.
But that view misses a crucial point: The rule-writing process is designed to gather opinion, including advocacy, about the impact of regulations.
The process worked, fueled by more than 11,000 letters—more than half from credit unions alone. Call it “lobbying pressure”—but the Fed sought comments and credit unions answered.
- Credit unions impress with grassroots. Several reporters told us they were impressed with the half million contacts in support of legislation by Sen. Jon Tester, D-Mont., to “stop, study, and start over.”
And so were the retailers, our adversaries in this fight. “I represent an industry that’s on every street corner in America,” said a longtime retailer lobbyist. “But when I saw what the credit unions were able to do [with grassroots mobilization], it inspired me to take our industry to the next level.”
- Grassroots gets results: A senator’s chief of staff shared with us that credit unions were the reason his boss changed his 2010 vote to support Sen. Tester’s “stop, study” bill in 2011.
Credit unions generated more than 500,000 contacts with Con-gress in support of Sen. Tester during a three-month period. This pressure convinced 12 senators to change their votes, resulting in 54 senators ultimately supporting our position.
It wasn’t enough to get us beyond the 60-vote threshold Senate rules require (even though that represented a majority of the Senate). But we convinced a majority of senators, and that impressed the Fed.
- We must be ready to do it again—only better. Issues such as member business loans, capital reform, and protecting our tax exemption will need our collective strength and voices.
And the key to doing that is a continuing, strong relationship among credit unions, the leagues, and CUNA. Without that, there’s simply no way we could have achieved the results we did.
The next set of challenges requires us to build on what was done on the interchange issue, so that every member of Congress hears and listens to us.
No, we didn’t get everything we wanted on interchange; no fee cap at all would be our preference.
But Congress has spoken, and the rules—which could have been worse—are finalized.
Together, we played a clear and determinative role in that result.
BILL CHENEY is CUNA’s president/CEO.