CUNA, League Council: Interchange Bill Won’t Save Consumers Money

Study commissioned by credit union groups cites similar rule governing debit cards.

Legislation to impose new interchange rules on credit unions issuing credit cards would not save consumers any money on purchases, despite the claims of bill sponsors, CUNA and the American Council of Credit Union Leagues said Monday. 

In a study commissioned by the two trade groups, Cornerstone Advisors, a financial service consulting organization, cited a similar rule governing debit cards, contending that merchants failed to pass savings onto consumers.

That rule is known as the “Durbin Amendment,” which was part of Dodd-Frank and named after Sen. Dick Durbin, D-Ill., the sponsor of the legislation that mandated the debit card rule.

Backstory and Context

The new legislation, also sponsored by Durbin and others, would require the Federal Reserve to issue rules that would ensure that large credit unions and banks that currently use the four-party card processing system be required to use at least one affiliated network in addition to Visa and Mastercard.

It has set off a battle between merchants, who contend that allowing them to use another processing system would result in competition that would save consumers money, and financial services trade groups, who argue that the debit card requirement did not benefit customers.

Inside the Report

“While the intent of the Durbin Amendment was to lower prices, which largely did not occur, it did trigger a shift in costs of providing banking services to the same customers that were supposed to receive cost savings at merchants,” Cornerstone Advisors stated in the new report.

“The consumer did not benefit from the Durbin amendment,” Glenn Grossman, Cornerstone’s director of research said, in a conference call with reporters Monday.

He predicted that an interchange requirement on credit cards would have the same effect, with merchants failing to pass any savings onto consumers.

“Their attitudes have not changed,” he said, referring to the merchants.

“Routing mandates have resulted in an increased burden on credit unions and smaller community banks that have seen revenue cut by almost a third for single-message transactions, which represent the majority of debit transactions for an issuer,” the report reads.

Concerns Over Credit Availability and Fraud

Cornerstone found that the cost of the debit card interchange rule resulted in a decrease in services, including free checking, at many financial institutions.

“If credit card payments are to have the option to be routed on multiple networks, the financial impact will mirror behavior seen with debit card routing,” the report stated. “Another whack-a-mole scenario will arise with reduced or eliminated rewards, increased monthly fees, and possibly limited credit availability as revenue is squeezed from issuers.”

Further, the rule could increase fraud in the credit card industry, the research group said, adding that consumers have come to expect a zero-liability policy from their credit and debit card providers.

CUNA Reaction

The experience with the Durbin Amendment should serve as a lesson for lawmakers, according to CUNA President/CEO Jim Nussle.

“The research clearly shows that imposing a government mandate on interchange didn’t help consumers or small businesses the first time around,” he said.

He added, “We’ve seen the unintended consequences from the Durbin Amendment for more than a decade. Let’s not double down on a bad idea.”

Support for Interchange Bill

The National Retail Federation disagrees.

“It’s time for big banks and global card networks to compete the same as small businesses do every day,” NRF Chief Administrative Officer and General Counsel Stephanie Martz said when the bill was introduced. “Skyrocketing swipe fees have been driving up prices for consumers for far too long, and we are confident this is the year Congress is going to say it’s time for that to stop. Competition will bring these fees under control and strengthen security at the same time.”

According to the NRF, competition over the processing of credit card transactions would save retailers and consumers at least $11 billion a year.