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Proposed Interchange Fee Changes May Negatively Impact Your Credit Union | Understand the issue and how you can help. | Wednesday, October 14, 2009
How it Works
Many of you may have noticed in the news that merchants and retailers are raising concerns about the interchange fees they pay, and are asking Congress to intervene in the market to lower rates that have traditionally been established through contracts.
What is Interchange?
Interchange is a fee (about 2% per transaction) that merchants pay to card issuers (like Community First Credit Union) in order to provide consumers with a safe and convenient way to pay for goods and services.
What is the issue?
Merchant groups are stating that the fee is a “hidden tax” on consumers because it gets incorporated into the price of the good or service being purchased. One could argue that this expense is no more a hidden tax than any of their other operating expenses.
Efforts to introduce government regulation of interchange in other countries have shown that if the fee is lowered, retailer profits improve and consumers do not see lower prices.
Back in July, a major convenience store chain organized a nationwide, million-signature petition campaign calling on Congress “to reform unfair and excessive” credit card transaction fees. Recently, corporate representatives of this major convenience store chain delivered nearly 1.7 million signatures to the Members of the U.S. Congress.
What's the impact?
The current interchange fee structure works well. Changes in the system regulating interchange fees would adversely affect consumers, competition, and technological innovation. Interchange fees help credit unions cover their expenses and losses while offering merchants a guaranteed source of payment at the time that the transaction is completed.
Recently VISA and MasterCard released survey results showing that consumers don’t want merchants to be able to shift costs to them, which basically is what the major convenience store chain is calling on Congress to do. Both the VISA and MasterCard surveys clearly showed that when consumers are told that interchange legislation would raise their costs or cut their benefits, they oppose it.
Interchange Study and Pending Legislation
Now the U.S. Government Accountability Office has initiated a study on the use of credit by consumers and specifically, the effect interchange fees have on merchants and consumers. The result of these efforts may lead to a legislative push to decrease the interchange fees financial institutions recoup from retailers every time a consumer uses their credit card to make a payment. If this type of legislation would pass, Community First Credit Union and similar financial institutions will be at a serious disadvantage in the market.
Potential Impact to Community First Credit Union
While recent legislation to curb anti-consumer practices in the credit card business was welcomed by Community First Credit Union, it now appears that some merchant groups are moving to take advantage of the public sentiment against the big credit card companies. However, the fact is that many community banks and credit unions could not offer credit or debit card programs without interchange fees to help cover their costs. The reason is simple; the bulk of the expense of maintaining today’s credit card payment system is borne by banks and credit unions, rather than the merchants. This is one of the reasons that merchants first embraced this system.
The chart below outlines the responsibilities of card issuers and merchants, and the key benefits that credit cards, supported by interchange fees, provide to each.
Community First Credit Union
| Merchant
| Responsibilities:
100% of Card Issuing Expense
100% of Card Operating Expense
100% of Fraud Losses
Statement and Call Center Services
| Responsibilities:
2% Interchange Fee
| Benefits (to members):
A safe and convenient way to pay for goods and services
Zero liability on fraud
Grace period for interest-free payment on all purchases
Worldwide and universal acceptance
| Benefits:
Immediate and guaranteed payment
Consumer convenience and safety
Increase in goods and services purchased
Lower costs handling checks, currency, and related losses
|
Merchants don’t have to participate in the interchange system; they can choose to accept only cash or checks at their place of business. However, if a merchant wants to enjoy the benefit of guaranteed immediate receipt of payment, mitigate their exposure to fraud, and provide convenience to their customers they should support the current interchange process.
What can you do?
Because Community First is a not-for-profit cooperative, it is critical that local and national merchants provide a fair return for the business they receive from our members. As this battle has become more politicized, we are asking you, our members, to voice your concerns to your elected representatives about the need to maintain a fair balance in card interchange.
To let your elected officials know that you support the current system as it stands, simply click on this link: Grassroots Action Center and follow the easy to follow instructions. Contacting your legislators regarding this important issue is your way as a member/owner to help protect your credit union from possible harmful legislation.
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