The Gimlet Eye: A Big Flap over Small Issuers

Now that the debit card interchange controls mandated by the Durbin Amendment have been in place for nearly a year-and-a-half, observers have decided to check in on the small financial institutions exempted by Durbin to see whether their fears about the law have been proven by experience.

You may recall that, though the law leaves market interchange in place for all issuers under $10 billion in assets, small banks and credit unions and their trade-association allies have fiercely opposed the Amendment ever since it was first proposed three years ago. They argue that, since merchants will simply prefer cards issued by exempt issuers, they’ll be forced to back down on interchange over time, rendering the exemption meaningless. Backers of the law, which include just about all retailers and their trade groups, have been just as keen to show the small fry that their fears are unfounded.

Too keen, perhaps. In January, the Merchants Payments Coalition put out a release claiming that new data show credit unions, nearly all of which fall under the $10-billion threshold, have been little affected by the Durbin price caps since they became effective Oct. 1, 2011. The MPC is a Washington, D.C., lobbying group created eight years ago by merchant interests specifically to push for interchange reform. Signature-debit interchange revenue has remained level, while PIN-debit revenue has dropped a modest 6%, according to the data, which reflect results for more than 100 issuers from the first quarter of 2010 through the third quarter of 2012.

The only trouble is, the Credit Union National Association, or CUNA, whose survey results the MPC was citing, didn’t agree with the MPC’s interpretation. It turns out you have to look at the numbers in context.

In a blistering response, CUNA called the MPC release a “gross and pernicious mischaracterization” of its data. “Further, the results of our survey show clearly that, in the past year, the growth of interchange income at credit unions slowed considerably and even declined in the latest quarter, despite persistent growth in the total number and dollar volume of credit union debit card transactions,” the CUNA statement went on to say. “This is because per-transaction debit interchange rates began to decline as soon as the Fed’s rule took effect, and this decline has accelerated in the most recent quarter.”

Regardless of how you read the numbers, the interesting thing here is how eager Durbin backers are to disprove the small fry’s misgivings. Maybe they know that, to win further interchange reform in Congress, they would do well to get small issuers on their side. In that endeavor, results like those in the CUNA survey don’t help.

John Stewart, Editor

john@digitaltransactions.net