Small Issuer Concerns Remain Despite FTC Interchange Report
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 Wall Street Reform and Consumer Protection 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.
"CUNA has repeatedly warned that merchants may collude with larger banks to steer payments through the lower-cost, fee-capped interchange systems," CUNA's Dunn said. "The FTC report does nothing to dispel that concern, or any other concern, long-term.
"You have only to look at the conflicting information in the September Government Accounting Office (GAO) report to see that the jury is still out on this 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.
Those provisions require financial institutions to enable their debit cards with two unaffiliated payment card networks, which CUNA has said will likely cause even more substantial reductions in interchange fees to exempt issuers. The GAO study goes on to note that community banks and credit unions are struggling to maintain viable debit programs and that some have had to raise fees.
In fact, 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.
CUNA'S Dunn said all aspects of the interchange cap law must continue to be monitored and assured credit unions that CUNA's work on these issues will continue.
She said it should not be forgotten that 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.