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May 2, 2011 – NAFCU President Fred Becker is urging Senate Majority Leader Harry Reid, D-Nev., and other senators to back legislation that would delay the July 21 implementation of the Federal Reserve's debit interchange rule so its impact on small financial institutions can be examined.

In a letter sent today, Becker called on Reid and his colleagues to vote in favor of S. 575, the Debit Interchange Fee Study Act of 2011. The bill, introduced by Sens. Jon Tester, D-Mont., and Bob Corker, R-Tenn., would allow more time so the impact on financial institutions with less than $10 billion could be fully determined. During the rulemaking process, the Fed only surveyed card issuers over the $10 billion asset threshold, Becker noted.

	A petition signed by more than 8,700 Nevada FCU members was delivered to the office of Senate Majority Leader Harry Reid, D-Nev., last week to urge support of S. 575. The CU president and CEO, Brad Beal (far left), went with members to deliver the petition to Reid's Reno office in the state courthouse. Members "are engaged and very concerned about this issue," Beal said.

The proposed cap outlined in the debit interchange provision "only accounts for the costs of large issuers who have greater economies of scale, and further disadvantages smaller credit unions," Becker wrote. While small issuers will likely "receive the lower, capped interchange rate as market forces push rates to that level," that rate will prove to be "twice as difficult for small issuers to manage because the fee is based not on their own costs but on costs of larger, more complex institutions with better economies of scale," he said. The provision will ultimately have the unintended effect of providing a significant competitive advantage to large issuers.

Even Fed Chairman Ben Bernanke has expressed concerns about the provision, Becker noted. While testifying before the Senate Committee on Banking, Housing, and Urban Affairs, Bernanke admitted there is a very real possibility that the exemption from the price cap for smaller institutions "will not be effective in the marketplace." He cited two specific reasons for this: Merchants will reject more expensive cards from smaller institutions; and networks will not be willing to differentiate the interchange fee for issuers of different sizes - concerns that NAFCU has repeatedly expressed since the provision was first announced.

Given the limited time frame, Congress must delay the final rule to accommodate further study, Becker said. The Tester-Corker bill is "a common-sense approach to ensuring this issue is properly vetted before permanently changing the debit card processing system that millions of American consumers use on a daily basis."

If Congress does nothing, and the interchange provision goes into effect, it will have a detrimental impact on American financial services consumers, including 92 million credit union members nationwide, Becker concluded. "This matter is urgent and should not be taken lightly. It is with these concerns in mind that NAFCU urges the Senate to act on the Tester-Corker legislation in a timely manner."