How Will Credit Unions Respond to Durbin Amendment?

Section 1075 of the Dodd Frank Act (also known as the Durbin Amendment) authorizes the Federal Reserve to regulate the pricing of interchange fees on debit cards. While small issuers (under $10 billion in assets) are exempted, most industry analysts believe that small issuer exemption will be ineffective.

The Credit Union National Association's testimony before the House Financial Services Committee provides some interesting insights into how credit unions will respond to the Durbin Amendment.

"According to CUNA’s 2010-2011 Fee Survey, 91% of credit unions offering debit cards anticipate making some sort of change to their rates, fees, and/or services as a result of the negative impact of the regulation. The most common changes credit unions anticipate making will be to introduce or increase debit card fees and to increase nonsufficient funds (NSF)/overdraft protection fees. About 40% of credit unions cite these potential changes ... Beyond this, 25% to 30% of credit unions say they might eliminate free checking accounts and/or lower deposit rates as a result of the regulation.

If the exemption for small issuers proved completely ineffective, the Board’s proposed 12 cent fixed fee could require credit unions to impose an annual fee in the range of $35-$55 per debit card, a fee in the range of 25 – 35 cents per transaction, or some combination of the two in order to maintain pre-reform revenue."

Read the testimony.

Separately, the February 2011 Economic & Credit Union Monitor from the National Association of Federal Credit Unions found that price controls on debit interchange fees will on average shave 35 basis points from credit unions' bottom lines. Almost half (48.3%) ot the surveyed credit unions are considering eliminating free checking accounts to make up for the loss of income from the Durbin Amendment. Additionally, 45.5% of the survey respondents are considering charging an annual or monthly fee to access a debit card. Slightly less than half (43.8%) said they may eliminate or reduce rewards programs and 8.6% are considering cutting staff.