Fee fear: Dodd-Frank's proposed interchange-fee changes provoke alarm
Bank and credit union groups are continuing intense lobbying against a cap on interchange fees scheduled to take effect in July, fearing the change will hamstring financial institutions that provide debit cards to their customers.
Part of the Dodd-Frank financial reforms, the measure would put a 12-cent cap on the fee charged by financial institutions whenever a customer uses a debit card, significantly less than the existing 1% or 2% of the transaction amount. The revenue generated by the interchange, or swipe, fee contributes an estimated $16 billion to the bottom lines of financial institutions around the country. Wells Fargo announced March 29 it would stop enrolling new customers into its debit card reward program as of April 15 because of the impending change.
Maine financial institutions are worried, as well. John Murphy, chief of the Maine Credit Union League, was in Washington earlier this winter, lobbying against the act. Although the most recent version of the act exempts institutions with less than $10 billion in assets, Murphy says smaller institutions will have to adopt lower fees to remain competitive with the big banks. “The part that frustrates me is how no one talks about the costs associated with these services,” he says. “For many of our members, offering debit cards is a revenue wash, but you have to do it because the consumer expects and needs it.”
Mike Foley, vice president of development for Five County Credit Union, studied the swipe-fee ledger at his credit union. About 11,000 members, or roughly half of Five County’s base, have a debit card. In 2009, Five County’s reported interchange income totaled $748,308 against expenses of $829,334, resulting in a net loss of $81,026. In 2010, interchange income of $905,402 was offset by program expenses of $916,973, resulting in a net loss of $11,571.
“As you can see from the numbers, Five County does not offer this program to our members due to profitability,” Foley writes in an e-mail. “It is a convenience product that provides members with point-of-sale/ATM access to their funds on deposit. It is a product that is in high demand, and in order to remain competitive in the financial services arena, it is a product we must offer.”
Included in the costs associated with the debit card program are network processing and ATM settlement charges, billing, data processing charges, costs to reissue cards, bond coverage premiums, fraud losses and staff administration.
Carol Coultas
Five County Credit Union swipe fees
2009
Income:$748,308
Expenses: $829,334
Net difference: -$81,026
2010
Income: $905,402
Expenses: $916,973
Net difference: -$11,571
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