What is the Interchange Amendment?
Congress passed a law, scheduled to go into effect this summer, which included new limits on interchange. The Interchange Amendment, sponsored by Senator Durbin, instructs the Federal Reserve to regulate debit interchange fees. This will cause consumer debit card/checking account costs to increase while merchants profit.
So, what is interchange?
Every time you use your card for a purchase, the merchant pays a merchant discount fee which allows them to be paid immediately. The fee is a portion of the transaction amount. A small portion of this fee goes to the credit union or bank that issues you your credit or debit card. Your credit union, not a merchant, is responsible for absorbing losses from fraud and unpaid balances associated with card programs. Interchange revenue covers a wide variety of costs for credit unions including everything from re-issuing cards compromised by merchant data breaches, to providing a call center to contact if your card is stolen, to many other essential program functions. Merchants pay this fee so they can have the convenience of using the global electronic payment network and be guaranteed payment. The ability to offer this service enables the merchants to increase their revenue.
How does this amendment affect you?
If this proposed legislation passes, the interchange fee will shift from retailer to consumer and could mean higher fees, debit restrictions, and the possible elimination of free checking at your credit union. If interchange were reduced and could no longer contribute adequate support for card programs, consumers would end up paying more for their debit cards.
If you would like more information on the Interchange Amendment and the current status, visit www.savemyfreechecking.com, a Michigan Credit Union League sponsored site. If you would like to voice your concerns to your U.S. Representatives and Senators, visit http://bit.ly/interchangeactioncall.