Credit Unions Claim a Win in Interchange Fight

Credit union trade groups claimed a victory Wednesday in their fight against legislation that threatened interchange revenue.

The Credit Card Competition Act of 2022 would allow processors other than VISA and Mastercard to handle credit and debit card transactions, with a goal of lowering interchange fees paid by merchants.

These “swipe fees” are a significant revenue source for banks and some credit unions. Bank and credit union groups opposed the bill, saying it would defund systems designed to provide security against fraud and invasions of privacy.

Lawmakers had considered getting the measure passed by including it in the National Defense Authorization Act (NDAA), which could be considered by the Senate when Congress returns in November.

But a bipartisan draft released Tuesday showed that the Defense bill omitted the interchange bill and two other amendments opposed by credit unions:

• Third-Party Vendor Authority sought by the NCUA to allow credit unions to hire third-party vendors for cryptocurrency as long as they abided by the same NCUA safety and soundness principles applied in other vendor relationships.
• A proposed study of interchange costs to military service members.

“This is a big win for credit unions, but we need to continue the fight to make sure lawmakers fully comprehend the damage this bill would have on the financial services industry and American consumers,” NAFCU President/CEO Dan Berger said.

CUNA President/CEO Jim Nussle also said he was pleased the interchange provisions were omitted.

“We continue to believe the Marshall-Durbin interchange bill would cause severe harm to the card payments landscape, by itself, but especially attached to a larger bill without even a single hearing,” Nussle said.

But the issue is not dead. Doug Kantor, general counsel for the National Association of Convenience Stores and a member of a retail coalition that supported the interchange provisions, said the interchange provisions could be added to the NDAA on the floor.

“This is just the beginning of debate over the NDAA and there are many senators who are very concerned about the impact of high swipe fees on veterans who have bravely served their country,” Kantor said. “The swipe fees that the DOD pays to banks and card networks and get passed on to veterans make this issue very germane to the bill.”

Sens. Dick Durbin (D-Ill.) and Roger Marshall (R-Kan.) introduced the Credit Card Competition Act of 2022 in the Senate in July to 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. They said the bill would allow “innovators” outside the “Visa-Mastercard duopoly” to compete in the market, reducing swipe fees. A similar version is in the House.

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, according to Durbin.

NAFCU and CUNA have made the issue a centerpiece of their legislative efforts this year even though the interchange provisions apply only to card issuers with more than $100 billion in assets. Based on June 30 data, that narrowed it to 32 banks and the nation’s largest credit union: Navy Federal Credit Union of Vienna, Va. ($159.7 billion in assets, 11.8 million members).

The National Retail Federation (NRF), which supports the bill, said those big players account for about 90% of Visa/Mastercard credit card volume. Navy Federal held $23.2 billion in credit card debit as of June 30, or a third the amount for all credit unions.

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.

NAFCU, CUNA and the Defense Credit Union Council joined with the American Bankers Association and other banking groups in an Oct. 6 letter to Senate and House leaders. The letter stated their opposition to including the interchange bill as an amendment to the National Defense Authorization Act. The group said the interchange bill would “reduce the availability of safe credit, and undermine the nation’s data security.”

“This legislation circumvents the free market to award private-sector contracts to a small handful of payment networks favored by the bills’ sponsors in order to pad the profits of the largest e-commerce and multi-national retailers who are raising prices on American families far more than the real rate of inflation,” the letter said.