Community banks, credit unions report lower debit card revenue

Bill Hampel

Bill Hampel

Small financial institutions across the country have reported lower debit card revenue as a result of pending financial reform legislation, inciting concern that customers may be forced to shoulder new fees as a result.

The FTC and GAO said in recent reports that an exemption to the controversial Durbin Amendment for community banks and credit unions has allowed them to charge, on average, higher interchange or “swipe” fees, Tampa Bay Times reports.

Executives from small financial institutions, however, maintain that the FTC and GAO reports do not necessarily reflect the true impact of the legislation on their businesses.

“The fees that the credit card processors pass on as revenue to banks like ours have definitely gotten smaller,” Senior Vice President of Sandy Spring Bank Denise Stokes said, according to Tampa Bay Times. “Those companies took a hit when revenue dropped for the large banks, so they passed some of that loss on to us in the form of lower rates on processing fees. Our loss hasn’t been huge, not as high as what the large banks have been hit with, but still, it’s been significant.”

Representatives of community institutions said that they expect the revenue decrease to continue in the future, which could prompt many institutions to implement new fees and reduce services as many larger banks chose to do.

“When these banks start losing revenue, consumers often start losing free checking and start paying new processing fees,” Electronic Payments Coalition spokeswoman Trish Wexler said, Tampa Bay Times reports. “In the end, when two large industries fight and go to lawmakers to try to resolve those differences, it’s almost always the consumer who winds up with the short end of the stick.”

Additionally, the “routing and exclusivity” provision of the 2010 Dodd-Frank Act requires credit card issuers to offer more payment processing options to merchants’ banks in order to reduce transaction costs to merchants. Some economists expect the provision to encourage card companies to pay less per transaction.

“The provision that could really start to lower interchange revenues for smaller institutions took effect in April, and in the only full quarter since then, the third quarter of 2012, we saw the first-ever decline in interchange revenue for credit unions,” Chief Economist of the Credit Union National Association Bill Hampel said, according to Tampa Bay Times. “We are concerned about whether that was a one-time downward shift or the first of several quarters of decline.”

Some banking officials, however, maintain that it’s too early to assess the provision’s impact on small financial institutions.

“It’s kind of like saying, ‘It hasn’t snowed yet this year, so it’s not going to snow,’” Bradford Thaler, the vice president of legislative affairs at the National Association of Federal Credit Unions, said, Tampa Bay Times reports. “It’s too early to tell, but if anything, we’re seeing evidence that the fees for big and small banks will eventually come together.”

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