Small Banks, Credit Unions Oppose Cap
May 08, 2011 (Albuquerque Journal - McClatchy-Tribune Information Services via COMTEX) --
New Mexico's credit unions and small banks say a new federal law limiting fees charged to merchants when a customer buys something with a debit card will ultimately cost consumers more money.
That's the opposite of what Congress hoped to achieve.
That's because, while the cap is supposed to apply only to the big banks, the small outfits are convinced they will face the same reduction in debit card swipe fees. And that will force them to raise revenue elsewhere -- such as increasing fees for other services.
Local bankers believe the networks that handle debit card transactions won't differentiate between big and small institutions -- they will simply lower all of the fees. And while the megabanks might be able to absorb that hit to revenue, small banks and credit unions say they cannot.
"Free checking is going to be gone," said state Independent Community Bankers Association President Jerry C. Walker. "You can kiss that away. If you want a debit card, there are going to be (extra) fees."
Surveys conducted by the Federal Reserve System found that people spent $1.6 trillion using debit cards in 2009. Debit cards were swiped more than 36 billion times. The average fee charged per transaction was 44 cents.
The Federal Reserve has proposed a maximum fee of 12 cents per transaction.
The law, scheduled to take effect July 21, is part of the Dodd-Frank financial reform measure passed last year. It exempts financial institutions that issue debit cards if they have less than $10 billion in assets.
None of New Mexico's 49 member-owned credit unions or 51 independent community banks come close to $10 billion in assets. Indeed, said Sylvia Lyon, Credit Union Association of New Mexico president, only three credit unions in the country have more assets than that.
The concern, according to Lyon and Walker, is that companies like Visa and MasterCard that run the computer networks that handle debit card transactions and fee collections will implement a single fee structure that doesn't differentiate between Bank of America with its $2.3 trillion in assets and First National Bank of Santa Fe with $707 million in assets. When a consumer's debit card is swiped at the local bookstore, those networks identify which bank has the customer's money, they verify there are sufficient funds in the customer's account, and they transfer the money from the customer's account to the merchant's account, minus a fee. The network keeps some of that fee; the financial institution keeps the rest.
Congress expected that a cap on debit card fees -- $20 billion worth of them nationwide in 2008 -- would lower merchants' costs and ultimately show up in lower prices for goods. The cap has the enthusiastic backing of the National Retail Federation. The New Mexico Retail Association has taken no position, said Randy Sanchez, board chairman.
Walker and Lyon, who say their associations rarely agree on much of anything, estimate that the rules, if implemented as proposed, will reduce the fees credit unions and banks collect for use of their debit cards by 70 to 80 percent. Small New Mexico banks don't generate much profit, Walker said, and credit unions are nonprofit institutions. The shortfall in revenue will have to be made up somewhere, Walker and Lyon said.
"The independent banks and credit unions aren't going to eat this," Lyon said. "They can't afford to."
At a minimum, small banks and credit unions would like a law that requires debit card networks to cap fees only on the big guys. Their national associations are backing federal legislation that would delay the cap for a year and require a study of how debit card fee caps would affect small businesses and small financial institutions.
Neither New Mexico association knows how much money their members collect in debit card fees, how many customers use debit cards or how many debit card transactions occur.
Walker and Lyon say the law will help the big-box stores, do little for small retailers and will raise banking fees for consumers. They question whether the Walmarts and Targets of the world will lower their prices when they pay less for debit card fees.
"The big-box guys are really the ones who are going to benefit from this," Walker said. "I don't believe for one minute some little hardware store in New Mexico is going to realize enough of a financial impact that it's going to save their bottom line."
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