The Federal Reserve's recent look at debit fees shows
so-called exempt institutions (including credit unions) are
seeing income decline. (Chart excerpted from Fed report.)
March 6, 2013 – The Federal Reserve Board released data Tuesday that shows small credit unions and other exempt card issuers saw their debit interchange income decline last year under the Fed’s fee cap rule – but the Fed has no plans to change that rule anytime soon.
The data are contained in the second-yearly report by the Fed under the Durbin amendment of the Dodd-Frank Act. The Durbin amendment called on the Fed to determine what is a reasonable and proportional debit interchange fee. The final rule set a fee cap of about 21 cents and allows a 1-cent fraud-prevention adjustment.
The Fed’s first report under the law showed that exempt institutions – those with less than $10 billion in assets – did see a small decline in interchange revenue in the first several months that the fee cap was in effect.
The decline has continued: Fees as a percentage of transaction value for exempt issuers was 1.16 percent in the nine months ending Sept. 30, 2011. In the three-month period ending Dec. 31, 2011, it declined to 1.1 percent.
The Fed also found that the smaller the number of transactions, the higher the cost of handling them. This despite the fact that the Fed rule, under Dodd-Frank, sets generally the same fee cap based on a finding of what is a proportional fee.
“As NAFCU has indicated all along, the unjust price cap on debit interchange will negatively impact credit unions and other small financial institutions, and this is further evidence of that fact,” said Chad Adams, NAFCU’s associate director of legislative affairs.