The very popular VISA debit card program at UCCU that dates back to the mid 80’s has recently come under fire from Congress. Last fall, in a last minute move, Senator Durbin (D-Illinois) added an amendment to the Frank/Dodd financial reform act. Without the benefit of Senate review, research or scrutiny, the amendment passed along with the rest of the huge Frank/Dodd act.
The Durbin Amendment is unnecessary- and it is wrong! Save our Debit Cards! Contact your elected representative today by clicking here or by visiting www.saveyourdebitcard.com!
What is “interchange”? Why is interchange necessary? How will changing interchange fees impact UCCU members? For this and other answers click here and review the factsheet.
In short, the Durbin Amendment removes the free market forces that determine the amount of the fee paid by retailers to participate in the plastic card payment network and puts the government in charge of determining the fee amount. In addition, the amendment disallows the government from considering all appropriate costs associated with operating a debit card program. For example, the cost of fraud, security, and fraud prevention are not allowed to be part of the formula to determine the fee paid by merchants. The government is also not allowed to allow for any profit in the formula. As a result, the fee income is expected to drop by a devastating 70%-80%! This money, considered by some to be as much as $18 Billion a year would now go to the retailers and merchants. Meanwhile, financial institutions like UCCU are left with not only the costs associated with operating the debit card system but also the costs of fraud prevention, insurance, and the actual fraud losses – all with no way of covering those costs! Fraud loss alone during 2010 at UCCU was over $500,000! And that is a lower-than-typical loss rate for operating a VISA program. Under existing laws, neither retailers nor the members have liability for those fraud losses – they are absorbed by the credit union and are covered as part of the costs of providing the service to members. We spend $10’s of thousand each year on fraud prevention software and systems to fight fraud and keep transactions as safe as possible for all members. The retailers enjoy the instant and safe reassurance of receiving the money for sales and we have nearly all the risks. This is a bad amendment that will end up lining the pockets of retailers and ultimately the costs will be borne by the American consumer. The loss of this income is financially devastating to financial institutions trying to offer their customers a VISA debit card program. Senator Durbin knows this and so he offered a handwritten change in the amendment at the last minute that would exclude all financial institutions under $10 Billion in size. This two-tier pricing program would mean that merchants would pay lower fees on debit cards from huge banks like Bank of America or Chase – but they would pay higher fees on debit cards issued by local institutions like UCCU, Bank of American Fork and others. Huge retailers will not want to accept cards from local, smaller institutions.
Recent Senate testimony from FDIC chairman Sheila Bair, and NAFCU President Fred Becker clearly warned that this two tier system won’t work. Ben Bernanke of the Federal Reserve Bank made it clear that excluding financial institutions under $10 Billion won’t work and predicted that despite this exclusion in the Durbin Amendment, all financial institutions would end up following the government established fee structure. With a 70%-80% loss of income, financial institutions will be forced to replace the needed income by raising fees and/or rates. Even a not-for-profit organization like UCCU must find the income to pay the expenses of operating the debit card program. So, the money goes to the retailers as increased profits and comes from – guess who- the consumer. Government should not be involved in picking winners and losers and should let the free market determine prices and costs.
As Senators and Congressmen have come to understand the real impact of this amendment they see that it is an unwise insertion of the government into the free market forces and that it rewards retailers unfairly at the expense of financial institutions and consumers. As a result, Senator Testor (D) from Montana introduced SB 575 which doesn’t repeal the Durbin Amendment, but rather delays its implementation and requires that a study be done to determine the true costs of operating a debit card program and the ramifications of such an intrusion by the government would have on financial institutions and consumers. (This study should have been required before this amendment was hastily added at the last minute!) Utah Senator Mike Lee sees through the smoke screen thrown by Senator Durbin and the retailer lobby and has signed on to support SB 575. Our local Congressman, Jason Chaffetz has also thrown his support behind a similar delay bill in the House. We commend both these elected officials for protecting the Utah consumer and the smaller financial institutions across the country. Congressman Jim Matheson has not yet signed on to this bill. Senator Hatch has not yet signed on.
Now – the call to action. As a member of UCCU we ask that you consider the following material and that you take advantage of the simplified process to contact your elected officials regarding this important matter. In the case of Senator Lee and Congressman Chaffetz – a message of thanks and support is important. Both are taking a lot of heat from the merchant and retail lobbies. By hearing from our 105,000 members that their efforts are appreciated, they will remain committed to delaying and/or repealing this terrible amendment.
If your elected representatives have not yet signed on to support these delay bills: Senate Bill 575 and House Resolution 1081 please urge them to do so immediately! The next few weeks are crucial in delaying and possibly overturning the Durbin Amendment. Follow the simple steps outlined and protect your Debit Card and your Credit Union (and all credit unions and community banks) from the nasty effects of this unwise, special-interest amendment. The government has no business setting debit card fees.
Take action and let your voice be heard! We have made if very simple and easy for you to communicate with our elected representatives. Your voice matters! Let it be heard.
Remember, the Durbin Amendment is bad because:
- It interferes with the free market and puts the government in charge of determining prices and fees.
- It does not require that the “savings” go to consumers. In fact, the “savings” will go to the retailers as increased profits. (Otherwise, why would the retail lobbies be so active in supporting the Durbin Amendment?)
- It does not make sure that the two tier pricing system will ever materialize and it does not require that merchants and retailers continue to accept cards from all financial institutions.
- It does not make sure that all the costs of compliance don’t eventually get paid for by the American consumer. (In Australia where the government did the same kind of thing as called for in the Durbin Amendment – research shows that the “savings” did NOT get passed on to the consumer but rather went to the retailers and merchants. Surprise, surprise!)
In conclusion, and just in case you are still wondering if the Durbin Amendment is good or not – just imagine the screaming we would hear from retailers such as Walmart if the government decided that they needed to interfere with the free market system and by setting the prices Walmart could charge for their groceries in order to protect the small “mom-and-pop” grocery stores threatened by Walmart’s low prices. And let’s say that the government would set the prices based on just the costs of buying the groceries and produce. They would not consider the costs of security, the costs of shoplifting, the costs of spoilage, the costs of bad checks or other fraud, the costs of advertising or marketing. On top of that, they would not build into the price limits any allowance for any profit at all for Walmart’s grocery sales. (Walmart sells 1/5 th of the nation’s groceries. If they weren’t allowed by the government to make a profit – they wouldn’t sell groceries.) And let’s say that the government price setting plan would take all that “saved” money and give it to the banks – just to increase their operating profits! Can you imagine the complaints we’d hear from Walmart about the government interfering with the free market process and robbing Walmart of a chance to compete and prosper. If Walmart’s grocery profits, as a result of this government intervention, shrunk by 70% – 80% – Walmart would have to find other ways to replace it by raising prices or fees for other services or by marking up prices for clothes, toys, or other goods. Again, the American consumer would end up paying for the government program.
Yet, that is exactly the kind of thing that the Durbin Amendment proposes to do to financial institutions and American consumers. But sadly, in this case – since it puts money in the pockets of retailers, now Walmart is among many retailers who support and actually praise the government for interfering through the Durbin Amendment. So much for principle.
Even though I don’t like to see smaller stores close their doors because of the arrival of a Walmart or Home Depot, I support completely their right to pursue success, sell things cheaper than competitors, and operate without the government interfering and picking winners and losers in the retail industry. I support completely the retailers’ freedom to compete and charge what they want to. I also understand that many UCCU members shop at and even work for Walmart or other retailers. I have no negative feelings about that at all. But I believe in the free market system and am convinced that service, industry, businesses, and communities are better when the free market system is allowed to operate. In those few cases where government intervention is deemed appropriate, it must be done correctly, fairly, and not at the expense of one industry and the enrichment of another. The Durbin Amendment is unnecessary- and it is wrong!