Fed's Debit Proposal Will Adversely Impact Smaller Credit Unions

NCUA released a letter from NCUA Chairman Debbie Matz to Federal Reserve Chairman Ben Bernanke on the impact of the Fed's proposed debit interchange rule on credit unions.

Based on data collected in March and analysis on the direct cost and income from debit card transactions for credit unions of different sizes, NCUA requested the Federal Reserve modify the proposed rule to provide meaningful exemptions for small card issuers related to network exclusivity and merchant routing.

The proposed Federal Reserve rule would cap debit intechange fees to 12 cents per transaction for institutions with $10 billion or more in assets. NCUA contends that the prohibitions on network exclusivity and merchant routing would significantly disadvantage smaller institutions.

NCUA reviewed data from 296 credit unions. NCUA found that the direct cost per debit transaction does not fall below the 12 cents proposed by the rule until a credit union reached $100 million to $500 million in assets size. The median direct cost per transaction was 31 cents, 21 cents, and 19 cents for credit unions under $10 million in assets, between $10 million and $50 million, and between $50 million and $100 million in assets, respectively.

Additionally, more than one-third of the credit unions currently report losing money on debit interchange programs before the Fed's rule becomes effective. This would likely increase if the 12 cent cap goes into effect.

The Credit Union National Association stated that it believed the cost estimates for large credit unions' debit transactions were "incredibly understated" by NCUA.

Read the letter.