What’s Next for Interchange?

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Last week was difficult given the failure of the Tester-Corker amendment to delay the interchange rule. Senator Dick Durbin (D-IL) lobbied hard on this issue, and convinced many senators that a vote for Tester-Corker was a vote for the big banks and would result in an unnecessary delay on an issue that a large majority of the Senate supported. 

Particularly disappointing was the decision by all four members of the Northwest Senate delegation to vote against Tester-Corker. Two Association staffers were in DC last week and heard first-hand the senators’ concerns with the amendment, and their belief that small institutions will be protected under the Durbin amendment.

Despite the above, it was an achievement to amass 54 votes in support of “stop, study and start over.” This is a testament to the impressive grassroots efforts by credit unions, which sent about 10,000 emails to our senators on this issue. This helped to make the issue “radioactive” on Capitol Hill, and caused all four Northwest senators to consider switching their vote on an issue they supported less than a year ago. In the end, the public and political distaste for the banks was too much to overcome, despite everyone’s best efforts. Thank you for your tireless work! 

The Association will continue to educate the Senate about the effects of this rule on credit unions, the impacts of implementation, and how they can help. 

Interchange Goes to the Fed
The Federal Reserve has not yet come out with a final rule on interchange and the July 21 implementation deadline looms. We still have an opportunity to impact what the Fed’s final rule looks like and we are asking our senators to help in that effort; yesterday, the Association sent letters to all four of them to call or write the Fed in support of small issuers and to relay credit unions’ concerns.

If you would like to send a letter to our Senators with this request, we would encourage you to do so, using the talking points:

  • Congress directed the Board to consider costs to large debit card issuers but intended the income to small issuers be protected through the exemption it provided for debit card issuers with assets under $10 billion;
  • The Board should make the exemption for small issuers work by requiring the networks to report to the Board that they have developed a two-tiered system that will provide higher fee income for small issuers than the Board allows for large issuers;
  • The Board should require ongoing reporting from the networks on fees to small issuers, to ensure the two-tiered system remains effective;
  • The Board should in turn report that information to Congress on a periodic basis, preferably at least annually;
  • This monitoring system, that in essence allows the Board to oversee the two-tiered system, will help ensure such a system is provided and maintained. It will also provide evidence that Congress would need to step in should the system not be functioning as well as it should in order to protect small issuers’ incomes;
  • As the Board has acknowledged, the fee ceiling may ultimately impact all issuers. In light of this, the Board should include all allowable costs in the fee ceiling for large issuers;
  • With additional flexibility under the interchange statute for merchants to determine how debit card transactions are routed, the ceiling must be as high as the statute will allow in order to lessen the difference between fees for large and small issuers;
  • This will help minimize incentives for merchants to want to direct transactions to large issuers and for networks to lower fees paid to small issuers;
  • The Board should exempt small issuers from the routing and exclusivity provisions that provide latitude to merchants on the routing of transactions and require issuers to belong to at least two networks;
  • If the Board determines it does not have legal authority to do that, it should delay these provisions for at least two years; and
  • The fee ceiling provisions must take effect July 21, 2011, but there is no statutory effective date for the routing and exclusivity provisions.  

What’s Next
Another priority issue—the Senate Banking Committee will hold a hearing on Thursday on the issue of credit union member business lending. This hearing is expected to feature two panels of witnesses. NCUA Chairman Deborah Matz is expected to testify on the first panel. Bill Cheney will testify on behalf of CUNA on the second panel. Other witnesses on the second panel will include representatives from ABA, ICBA and NAFCU.


Questions? Contact a member of the Association’s Legislative Affairs team:

Jennifer Wagner, Director of Legislative Advocacy
Mark Minickiello, Vice President, Legislative Affairs
Stacy Augustine, Senior Vice President & General Counsel

Posted in Advocacy News, Federal, Industry Insight.