Wednesday, 27 April 2011 10:34
FORUM released a blog post on April 6th regarding the Interchange Amendment. Since then we have received various member questions. Below you'll find frequently asked questions and answers. If you have other questions, please comment and we'll do our best to try and answer those questions. You can also visit our Interchange Amendment website page for more information and for a link to voice your concerns to your U.S. Representatives and Senators. As always, thank you for being a FORUM member!
Will FORUM do away with Free Checking?
Merchant paid interchange income is a significant source of revenue to the credit union. This revenue helps to offset costs associated with checking accounts including the offering of debit cards, home banking, branches and other checking account features. Changes to this structure would result in the need to find alternate sources of income or ways to decrease costs. So, indirectly, this could impact deposit and lending rates at all institutions. FORUM will continue to do its best to provide valuable checking account products. However, this legislation will certainly require minor revisions to our account structure which could include the possible elimination of the current free checking account.
Should I write checks instead of using my debit card?
There is no need to change your debit card usage. At this time FORUM is not making any changes related to the Interchange Amendment that would impact our members. If a change were to be made to any product or service, adequate member notice and assistance would be provided. We ask that you continue to perform your transactions in the most convenient manner for you.
Will all financial institutions (banks and credit unions) be affected by this change?
Yes, all financial institutions would be impacted by this Amendment. Even though there is a provision for the protection of smaller institutions, the feasibility of this is even being questioned by the Federal Reserve. Market forces and the ability of big box merchants would cause the two tier system to eventually move to almost equal interchange rates.
What does this mean in actual dollar amounts?
The current system allows credit unions to provide competitive and member-friendly debit card services to members. The interchange we receive from these merchants is critical and covers the risks associated with offering debit cards, such as fraud and data security - risks that in the paper check era fell upon the merchant. Credit unions do not set the interchange rate. However, if the rate becomes too low, credit unions may be forced to either change the way they offer debit cards, or impose other fees to cover costs.
As a user who has consciously elected not to use a debit card, will I have to bear the incremental cost of this "pass through" fee?
At this time FORUM CU is not making any fee changes related to the Interchange Amendment that would impact our members. Our efforts would be to minimize the impact to all members and focus on ways that each member pays their fair share for checking accounts. At this time, debit card users are actually subsidizing other checking account holders in regards to the other costs associated with a checking account. Without interchange income, equitable sharing of costs would be an even greater priority.
If the law has already been passed, how would it help to voice our concerns?
There is still time to tell congress to stop these changes from going into effect. Congress is seriously considering a bill to delay the implementation for up to two years so that this amendment can be thoroughly studied. This amendment was passed very late in the legislative process and the normal due diligence was not completed. Even the Federal Reserve has not been able to meet the deadlines imposed by Congress for enactment of this legislation. Providing more time would insure that consumers are not harmed by this amendment.
Are credit unions on the side of big banks on this issue?
All financial institutions are in the same situation. However, smaller institutions would be impacted even greater. Larger institutions typically do not pay the same debit card processing costs as smaller institutions and therefore this legislation will have less of an impact on their debit card programs. Smaller institutions will very likely incur costs for providing a debit card program as the interchange rate will be less than the actual cost to process the transaction. Additionally, this doesn’t include the fraud and security costs associated with a debit card program.
Will this change affect both signature based debit card transactions (“credit”) and PIN based debit card transactions?
Yes, this amendment is for all debit card transactions. It doesn’t matter if it is a signature debit transaction (processed like a credit card) or a PIN based debit card transaction.