Banks & Credit Unions Unite to Protect Fees
Banks and credit unions join forces to defeat new legislation…
Credit union and bank associations have long held an adversarial relationship. But they’ve recently joined forces to defeat legislative attempts to lower and rein in interchange fees, a crucial source of revenue for many banks. The credit unions have united with the American Bankers Association, the Financial Services Roundtable and the Independent Community Bankers of America to fight legislation such as the Credit Card Fair Free Act, which they say is equivalent to imposing government price controls.
“This is a case where we see eye to eye,” said Dillon Shea, the senior vice president for politics at the National Association of Federal Credit Unions. A joint meeting in Washington was held recently by lobbyists for both groups to discuss capping fees. They warn that legislation will only dampen innovation in the industry and force card issuers to eliminate perks for consumers. They are also pointing to a study by MasterCard that showed the cap placed by Australia’s parliament in 2004 resulted in higher annual fees and reduced reward programs for cardholders. Another point in the study found that the savings from lower fees was not passed on to consumers, as many hope will occur.
Set by the major credit card companies, Visa Corp. and MasterCard, Inc., the interchange fees, averaging 2% of the purchase price, are levied on retailers every time a customer uses a credit or debit card to make a purchase and are paid to credit card issuers via the merchant’s bank. Merchants note that more than 80% of this market share goes to Visa and MasterCard, which they argue have too much control. The fees are eating away at their profits and imposing hidden costs on consumers. “There’s no transparency and there’s no negotiation,” said Mallory Duncan, the chairman of the Merchants Payments Coalition.
Banks and credit unions, however, argue that the interchange fee is the cost of doing business and must be worth paying or merchants would be eliminating credit cards as a payment option for their customers. The benefits to retailers are multi-faceted: timely payment, fraud protection, reduction in cash handling expenses and the opportunity to operate globally. They also point out studies that show that consumers spend as much as 20% more when they use a credit card versus other forms of payment. “Merchants have reaped huge benefits by accepting credit cards, locally, around the globe, and on the Internet,” said Scott Talbott, a senior vice president for government relations at the Financial Services Roundtable.
* Learn more about the Credit Card Fair Free Act, H.R. 5546 >
