An evaluation by credit unions on the financial impact of debit card
reform on the industry is incomplete and misleading and contradicts
other major studies on the topic, said the Merchants Payments Coalition
today, a group concerned about rising credit and debit card swipe fees.
Despite the fact that recent reports by four independent entities - the Government Accountability Office, Federal Reserve Board, the Federal Reserve of Kansas City and the Federal Trade Commission (FTC) - have shown that small financial institutions, including credit unions, have benefited from the Durbin Amendment, the Credit Union National Association (CUNA) claims credit unions have been negatively affected. CUNA is citing its own "CUNA Debit Interchange Survey," which has not yet been published or verified.
The Durbin Amendment encouraged more competition in the debit card industry and reduced by half debit card fees collected by big banks, exempting all banks with under $10 billion in assets.
The "CUNA Debit Interchange Survey" doesn't actually say whether credit union debit revenues have increased or decreased since debit reform started. Instead, it compares two quarters -- both of which were post-reform -- and shows that revenue went up in one of the quarters and down in the other quarter. Plus, CUNA evaluated only a small percentage of credit unions and omitted several important factors resulting in misleading findings. Data from only 150 credit unions out of 230 that participated in the survey has been used, according to CUNA's chief economist Bill Hampel, leaving out a lot of crucial data.
More tellingly, the FTC found that credit unions had done quite well since reform even though CUNA shared its survey data with the FTC before the release of the FTC's study.
"This survey is incomplete and misleading," said Doug Kantor, MPC counsel. "Every reliable source indicates that small banks and credit unions have been better able to compete with big banks since debit reform started. CUNA is not in step with reality."
CUNA estimates the decrease of swipe fee revenue in the third quarter of 2012 to be around $1.38 million for all credit unions (about $8,900 per credit union) but does not indicate whether that is actually more or less money than the same quarter of the previous year nor does it say how this total could be affected by the omission of the 32% left out of the calculations and does not consider or mention the increase of swipe fee revenue in the second quarter of 2012, said Doug Kantor, MPC counsel. See here for more detail.
The most recent study from the Federal Reserve of Kansas City found debit reform has had little if any impact on small banks' revenues. Excerpts from the study are below:
" . . . nearly all debit card networks have set separate interchange fees for regulated banks and exempt banks, creating a two-tier fee structure after the regulations took effect. The regulations forced the fees down for regulated banks, but the average fees for exempt banks changed little after the regulations took effect in the fourth quarter of 2011." (p.90)
"Regulated banks have seen their interchange fee revenues fall while exempt banks' revenues have remained roughly the same, on average." (p.108)
"Community banks and credit unions have reacted with a range of tactics. Some have offered monthly rewards to prospective customers for opening a checking account. Others have offered cash back for every debit card purchase made by customers during a specified period. Yet others have publicized offers of free checking accounts, with no requirements and no debit card fees." (p.103)
Swipe fees for both debit and credit cards were more than $50 billion in 2011, costing U.S. households more than $400 that year. The fees are eight times higher than in Europe. Numerous surveys and industry experts have found no negative impact of the debit reform and revealed it leveled the playing field for small institutions that were disadvantaged by the debit system as it had been dominated by big banks.
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