CUs Take Aim at Self-Styled Consumer Advocates in Credit Card Fight

Credit unions’ apparent battles against consumer advocates have broadened beyond the Consumer Financial Protection Bureau (CFPB) and progressive Democrats to include some high-profile Republicans.

CUNA and NAFCU’s latest target is consumer crusader U.S. Sen. Josh Hawley (R-Mo.), who is championing a bill to limit credit card interest rates to 18%. Banks and their credit union allies find the bill objectionable.

For readers unfamiliar with Hawley, his Senate bio says he previously served as Missouri’s Attorney General. “There he earned a reputation for taking on the big and the powerful to protect Missouri workers and families. He has battled big government and big business, special interests, organized crime, and anyone who would threaten the well-being of Missourians.”

Which now, apparently, includes credit unions.

Credit unions’ interest in Hawley was piqued earlier this month when he introduced his Capping Credit Card Interest Rates Act (S. 2760) as an amendment to a proposed “minibus” appropriations bill.

In a column in the New York Post Thursday, Hawley wrote that “old slogans about the magic of the market won’t cut it anymore,” and Republicans should step up and take the lead to pass this bill that “American workers and families deserve.”

Among the many instructions in Deuteronomy, he quotes one that says “thou shalt not lend upon usury to thy brother,” followed by examples from ancient Rome to the colonial Massachusetts where usury was protected by law — up to certain limits.

“Our leaders forgot why those laws existed in the first place,” Hawley wrote.

“They forgot the wisdom of Abraham Lincoln and Theodore Roosevelt — that while workers and capital each have their rights, one should not be privileged above the other.

“Instead, they went all in for capital and handed our financial system over to big business. Now we reap a bitter harvest. Credit-card interest rates are at record levels.”

One of the tricky issues for CUNA and NAFCU is explaining why they have a problem with a bill that limits interest rates to 18% when NCUA already forbids interest rates beyond 18% for federal credit unions and the trade groups say most cards from state-chartered credit unions also fall below the limit. The bill’s hammer would fall hardest on banks and other lenders that offer higher-rate cards.

In letters to Senate leaders Tuesday and Hawley on Wednesday, CUNA and NAFCU write that while average interest rates on cards from credit unions are already “significantly lower” than 18%, the bill “would include all associated fees and penalties in an arbitrary formula” that would allow credit cards “to easily exceed the cap.”

The trade groups argue that some credit unions might be forced to stop offering credit cards, especially in periods of high interest rates. As a result, consumers might be forced to turn to payday lenders, “pawn shops, online lenders—or worse—loan sharks, unregulated online lenders, and the black market.”

Meanwhile, CUNA and NAFCU continue fighting another card-related bill being pushed by consumer advocates, including U.S. Sens. J.D. Vance (R-Ohio) and Roger “Doc” Marshall (R-Kan.). NAFCU says Marshall has “threatened to hold up consideration of the minibus until the Senate takes a vote – either as a standalone or amendment – on the Credit Card Competition Act.”

The bill is designed to lower the swipe fees that retailers pay to the banks and credit unions that issue cards and Visa, Mastercard and the few other networks that process transactions. The bill would require lenders to allow at least two unaffiliated networks to process transactions, at least one of which must be other than Visa or Mastercard.

At a news conference Wednesday posted on YouTube, Marshall called the increases in swipe fees an “inflation multiplier” because they charge a percentage of the cost of items with prices that are already increasing through inflation.

Marshall said the bill is currently being blocked by a vote by four Republicans and two Democrats, but he said there’s still a path to get the bill passed.

“These senators who are holding up the vote are going to have to answer to Main Street, not Wall Street, eventually,” he said. “Americans deserve this vote.”

The bill only applies to financial institutions with more than $100 billion in assets, so the only credit union directly affected is Navy Federal Credit Union of Vienna, Va. ($165.3 billion in assets, 12.9 million members). Besides being the nation’s largest credit union, Navy Federal is far and away the movement’s largest credit card player. As of June 30, it held $26.9 billion in credit card balances, or 35% of the balances held by all credit unions.

CUNA and NAFCU have argued there are indirect ways the bill would apply to other credit unions. And have said it’s unlikely any savings by stores would get passed down to consumers.

In a news release Thursday, CUNA President/CEO Jim Nussle said the current system works to maintain the expensive security measures maintained by issuers and networks to protect privacy and prevent fraud. “This bill contains no requirement for merchants to protect data, or to use the most secure processing option,” Nussle said.

Caroline Willard, president/CEO of the Cornerstone League, which represents credit unions in Arkansas, Oklahoma, Kansas, Texas and Missouri, acknowledged in a CU Times podcast interview that the bill “sounds harmless.”

However, Willard said the bill is a “clear and present danger” to credit union non-interest income, retailers aren’t likely to pass along savings to consumers and inexperienced networks are likely to increase the incidence of fraud.

Willard said she raised the fraud issue with Marshall at meeting with him in early March during CUNA’s Governmental Affairs Conference in Washington, D.C.

“If you’re requiring unaffiliated payment networks, what you’re requiring are networks that perhaps haven’t had the experience with dealing with dual-message card processing, which is what credit card processing is,” she said. “It’s bringing new players into a different form of card processing. That has to mean that there could be some fraud increases because of that.”

Willard observed the message was not received well.

“I got to speak for about another two minutes, then he got up and left the room.”