WASHINGTON — Capping interchange fees would make it harder for credit unions to offer debit and credit cards and force them to increase the cost for their services, Chartway Federal Credit Union Vice President of Operations John Blum told a House panel last Thursday.
"The loss in revenue that would occur if interchange fees were capped must be made up somewhere. Ultimately those costs and those burdens will fall on consumers," he said during testimony before the House Judiciary Committee's Anti-Trust Task Force.
The panel is considering a bill, sponsored by Judiciary Committee Chairman John Conyers (D-Mich.), which would require major card brands to negotiate with merchants to reach an interchange settlement. If they can't reach an agreement, they'd have to submit to binding arbitration by a three-judge panel appointed by the Justice Department and the Federal Trade Commission.
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The Credit Card Fair Fee Act (H.R. 5546) has 31 co-sponsors. It was referred to the Judiciary Committee because it involves anti-trust issues, even though the Financial Services Committee usually regulates issues of income for financial services companies, such as credit unions.
Blum, whose Virginia Beach, Va.-based credit union has $1.2 billion in assets and 160,000 members, expressed concern that if the fees were decided by a panel, the rate would be based on the costs for larger institutions, which process more transactions. Credit unions would receive the lower, capped fee even though their costs are higher because they cannot achieve the economy-of-scale savings that big banks can, he added.
Because credit unions have smaller margins, setting fees at an artificially low price will cause them to lose much needed revenues that they can't make up for by issuing stock since credit unions are not permitted. Also, driving credit unions out of the credit card market could lead to higher interest rates and predatory pricing due to the lost competition, predicted Blum, who testified on behalf of NAFCU.
Representatives of the retail industry counter those arguments by saying that capping fees will rein in the credit card industry's excessive profits. Credit card companies are "seeing a windfall that is costing U.S. consumers tens of millions of dollars each year," National Retail Federation Executive Vice President Mallory Duncan said earlier this year. Retailers have focused their ire on card issuers such as Visa, MasterCard and American Express, rather than the card issuers, such as credit unions.
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