Credit unions saw their debit interchange revenue drop by $1.38 million in Q3 of 2012, according to the Credit Union National Association. The alleged culprit is the Durbin Amendment, which imposed a cap two years ago on debit interchange fees, or swipe fees: charges on merchants that are levied by card processors very time a card is used at the point-of-sales terminal.
Durbin intended both to give retailers a break from those fees and to protect smaller financial institutions like credit unions from its impositions – financial institutions with assets under $10 billion were exempt from the camp. However, as this report suggests, such is not the case.
As we reported last year, smaller institutions, too, are vulnerable to Durbin because of concurrent increases in merchant power: they have more discretion as to consumers’ method of payment, and many will steer customers away from debit cards offered by smaller institutions. The reason: credit unions and small banks often levy higher interchange fees on merchants than the big guns.
Beyond those credit unions, too, the study’s findings are troublesome. For their customers as well, this is bad news: those smaller financial institutions are the ones that often provide free services to low-income clientele. And those free services are made possible by debit interchange; it’s one of credit unions’ biggest revenue drivers.
The CUNA report’s methodology
The study, conducted from December 2010 to September 2012, compared credit union’s debit-interchange income from before and after Durbin’s implementation in October 2011. That’s 10 months of baseline data, pre-Durbin, and 12 months of post-amendment malaise.
CUNA studied 155 credit unions, and, initially, in Q2, they did see an increase in interchange – no specific data was available – but, in the subsequent quarter, beginning in June of last year, interchange fell by 1.4%: a $1.38 million loss for those institutions.
This is despite the fact that those 155 credit unions issued 165,000 more debit cards in that same quarter.
Originally, 230 credit unions had shared their interchange data with CUNA. A third were cut because of problems with data collection, according to CUNA chief economist Bill Hampel via the Credit Union Times; for example, some credit unions changed card processors as data was collected, and so they were unable to provide the requisite information.
Debit card image via Shutterstock