CUNA, NAFCU Join Banks Opposing Bill to Limit Interchange Fees

Credit union trade groups and banks have been fighting a bill introduced in the U.S. Senate Thursday that would allow processors other than VISA and Mastercard to handle credit and debit card transactions at less than 36 large banks and one credit union: Navy Federal.

The sponsors and the retailers who pay the fees said the bill would lower costs for consumers because retailers would pass along the savings from lower-cost processors to their customers.

CUNA, NAFCU and banking groups opposed the bill, saying it would defund systems designed to provide security against fraud and invasions of privacy.

CUNA President/CEO Jim Nussle said the Credit Card Competition Act poses a serious threat to sensitive financial data for millions of consumers by allowing the nation’s largest retailers to bypass established secure payment networks.

CUNA said interchange fees cover the costs of fraud detection, credit monitoring and fraudulent purchase protection, which it said keeps consumers, merchants and financial institutions safe.

“The so-called Credit Card Competition Act is nothing more than a massive financial windfall for big box retailers at the expense of consumers,” Nussle said. “This legislation would jeopardize access to safe, affordable credit.”

NAFCU President/CEO Dan Berger said the legislation fails to recognize the existing, robust competition within the payments network.

“With no modicum of consideration to the overwhelming risk from untested networks, loss of safe and affordable banking products, and higher credit cost it would pass on to consumers and financial institutions, it’s plain to see this bill is just bad policy all around,” Berger said. “NAFCU and its members will work hard to stop this legislation in its tracks.”

The bill would require large credit card-issuing banks to offer a choice of at least two networks over which an electronic credit transaction may be processed, with certain exceptions.

The bill was introduced by Sens. Dick Durbin (D-Ill.) and Roger Marshall (R-Kansas). Durbin said the bill would allow innovators to compete in the market, reducing swipe fees.

“Credit card swipe fees inflate the prices that consumers pay for groceries and gas,” Durbin said. “It’s time to inject real competition into the credit card network market, which is dominated by the Visa-Mastercard duopoly.”

A news release from Durbin’s office cited Fed data showing Visa and Mastercard account for nearly 576 million cards, or about 83% of general-purpose credit cards in circulation. Last year consumers spent $3.49 trillion using Visa and Mastercard credit cards in the United States.

Visa and Mastercard last year charged merchants $77.5 billion in fees on those transactions, including swipe fees paid to issuing credit unions and banks, and network fees merchants pay directly to Visa and Mastercard, Durbin’s news release said.

A news release from Durbin said the bill’s provisions apply only to issuers with more than $100 billion in assets, which means that among credit unions it would affect only Navy Federal Credit Union, Vienna, Va. ($153.4 billion in assets, 11.1 million members as of March 31). Navy Federal held $21.7 billion in credit card debit as of March 31, or a third the amount for all credit unions.

According to the National Retail Federation (NRF) fewer than 36 institutions are affected, but they account for about 90% of Visa/Mastercard credit card volume.

According to the National Retail Federation, merchants pay about $2.20 or more in fees on a $100 purchase. Typically it is split this way:

• $1.80 goes to the card-issuing bank or credit union.
• $0.30 goes to Visa or Mastercard.
• $0.10 (or more) goes to the merchant’s bank.

PSCU, the St. Petersburg, Fla., payments CUSO, earlier this month reported that its member credit unions handled $140 billion in transactions in the 12 months ending June 30. Under a 1.8% split, the credit unions would have received about $2.5 billion.

The NRF said swipe fees are among merchants’ highest costs after labor and drive up prices paid by consumers.

The NRF also said competitors could include a competing credit card network or “one of several independent networks like Star, NYCE or Shazam that offer equal security but lower fees.”

Leon Buck, the federation’s vice president for government relations, the bill would open up processing to more than a dozen companies “that can do the job just as well” as Visa or Mastercard.

“Credit card swipe fees have been driving up prices paid by American consumers for decades but are particularly burdensome amid the near-record inflation families face today,” Buck said.