For 76 years, Billings Federal Credit Union has represented the financial interests of its members, currently standing at 8,500 individuals in the Billings community. As CEO, I am writing to sound the alarm that the federal government is on path to imposing new regulations on debit cards. I fear it is going down a risky path that could harm millions of people who belong to credit unions or use community banks.
The biggest retail chains in our country are pushing this regulation. Even though they are also the biggest beneficiaries of the secure, convenient and instantaneous debit card payment system, they are not content with increased sales and steady profits. Now they want the government to cap the fees they pay to accept debit cards. These fees are generally 1 or 2 percent of the transaction, but the retailer-backed regulation would fix them at roughly 80 percent below these market rates. They have spent millions lobbying for this rule, and with good reason. The largest 2 percent of retailers stand to get a $12 billion windfall — every year.
The merchants have sold certain members of Congress on the notion that they will pass cost savings along to consumers — even though there is no such requirement in the regulation. If they were being honest, they would admit that consumers, community bank patrons and credit union members are going to foot the retailers’ bill.
Stop retailers’ lobby
Small institutions like mine are able to issue free debit cards because of the interchange fees merchants pay for accepting them. It is a system that works for everyone from the consumers and small businesses to credit unions and major banks. The fees level the playing field and allow our members the same zero-cost convenience enjoyed by customers of the largest financial institutions. They cover security costs, fraud protection and the vast network itself. Moreover, they permit credit unions to continue providing important services to our members.
If the retailers’ lobby is not stopped, community banks and credit unions around the country may have to increase their fees and rates just to cover debit services. Otherwise, we will have little choice but to create new restrictions or limit debit card use. Some of us may have to stop issuing cards altogether. That could spell the death of smaller financial institutions.
Before it was passed as part of last year’s financial reform, no hearings were held on the provision and no study was performed to determine the impact it would have on consumers and small financial institutions. Most of us who understand the importance of community banks and credit unions believe the regulation should be repealed entirely.
Our leaders in Congress owe it to us slow down the process long enough for its effects to be reviewed. That should have been done the first time around, but it is not too late to get it right now.
Thankfully for Montanans, our Sen. Jon Tester opposed this regulation last year and is now working to ensure that we get it right by delaying the implementation and conducting a full study of its impact on all parties including merchants, financial institutions, and consumers. Now that makes sense.