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Small Issuer Concerns Remain Despite FTC Interchange Report

Concerns of credit unions and other small issuers of debit cards remain despite a newly released Federal Trade Commission (FTC) report claiming small issuers have been unharmed by new interchange laws. The FTC report was ordered by the U.S. Congress last year. The agency was charged with assessing the impact of the debit fee interchange cap set by the Dodd-Frank Act. Although there is a carve-out for small issuers under $10 billion in assets, credit unions and other small issuers have been concerned that the big-issuers’ interchange cap would have adverse impact on their own debit card services.

The Credit Union National Association (CUNA) has repeatedly warned that merchants may collude with larger banks to steer payments through the lower-cost, fee-capped interchange systems and the FTC report does nothing to dispel that concern, or any other concern, long-term. The conflicting information in the September Government Accounting Office (GAO) report highlights that the jury is still out on this issue and that small issuer concerns cannot be dismissed. The GAO study showed that for credit unions and smaller community banks, supposedly "exempted” from the fallout of the legislation, interchange revenue dropped by 5% in just the first three months of implementation – even before the network exclusivity and routing provisions took effect in April 2012.

CUNA recently conducted a survey of credit unions offering debit card access. The survey found that per-transaction interchange revenue has declined in five of the six quarters since implementation. Because of these declining rates, total interchange revenue growth slowed considerably from pre-amendment rates right after implementation, and actually declined in the quarter ending in September 2012. That's the first full quarter since implementation of the routing and network exclusivity provisions of the rule. CUNA is concerned that as the routing provisions take hold, there could be further declines not only in per-transaction rates, but also total interchange revenue.

All aspects of the interchange cap law must continue to be monitored. The GAO report also noted that while the interchange cap shifted $8 billion from financial institutions to the retailers, so far there is no evidence that consumers are seeing lower prices as a result – a stark contrast from what merchants claimed.

Developed with CUNA’s NewsNow, Lisa McCue.

 

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