Unfair legislation would hurt credit-union members

Credit unions are rooted in our local communities and provide convenient, cost-competitive services compared to large, out-of-state banks and financial institutions. As president of Truliant Federal Credit Union, I am proud of the service we provide to our 127,000 member-owners in North Carolina. Last year, however, Congress passed legislation that would put local credit unions at a serious competitive disadvantage and could increase costs for those of us who use debit cards.

As part of financial-services reform, Congress passed the so-called Durbin Debit Card Amendment without a single hearing, no vote in the U.S. House and little discussion in the Senate. The amendment calls on the Federal Reserve to fix prices that retailers, including the big-box merchants, pay to accept debit cards. Truliant also serves small business, and we are mindful that small merchants feel burdened in paying any cost to have consumers use their debit card. On the other hand, handling cash and accepting checks have their own cost that may exceed sharing in paying for electronic payment systems thorough interchange. We believe the interchange costs that allow merchants of all sizes to accept cards from thousands of financial institutions and increase sales while providing for instantaneous transactions that are protected against fraud and theft are reasonable.

Because of a massive lobbying campaign in Washington led by giant retailers, Congress added an amendment to the financial-reform bill that directed the Federal Reserve to slash interchange fees paid by retailers by 70 to 90 percent. As a result, the nation's largest 2 percent of retailers will receive a $12 billion windfall each year, and credit unions that issue cards will be forced to make up billions in lost revenue. Credit unions are owned by their members, and the lost revenue directly impacts the rates we pay on savings, the rates we charge on loans and the fees we have to charge to cover service costs. There is little doubt that each if not all of those areas will be impacted by this legislative action. Although Truliant will attempt to minimize the impact on our members, consumers generally can expect new fees associated with their debit cards, limits on the amount or number of purchases and elimination of rewards programs and other benefits.

Credit unions use retailers' interchange payments to cover the cost of issuing cards, accessing and maintaining the interchange system and providing services to our members. Big out-of-state banks and major financial institutions can more easily absorb the reduced revenues, potentially resulting in an unfair, two-tiered system where debit cards from local credit unions are more expensive to use. Retailers, in turn, may discriminate against these local cards, inconveniencing members and driving credit unions out of the market. Our member-friendly, no-cost debit card programs could be at risk.

Beyond their harmful financial impact on local credit unions and their members, government-imposed interchange price controls are inconsistent with free-market principles. Imagine if the big-box hardware store was told it could charge only the cost of the parts for the lawnmower it sells. It would have to cover the cost of assembly, paint, shipping, advertizing, etc. How long would it sell that lawnmower or stay in business if pricing was dictated? Price controls generally stifle competition, impede innovation and hurt consumers. If illegal price-fixing by the networks is alleged, the courts — not government price-fixing — are the remedy.

Although some consumer groups have favored moving ahead quickly, the Federal Reserve announced that it would need more time to review the more than 11,000 comments it received about the rule; financial-institution regulators and a former Fed chairman have expressed their concern with the rule's impact on banking and the economic recovery. There is also concern that the real impact could be to force modest-means consumers out of the traditional banking system at the worst possible time. During this timeout, bipartisan legislation is being considered in the U.S. Senate to delay the regulation long enough so that a proper review can be performed of its effects on bank customers, credit-union members and consumers. We're hopeful our senators will favor reviewing the issue further before allowing implementation.

Marcus Schaefer is president and CEO of Truliant Federal Credit Union. The Journal welcomes original submissions for guest columns on local, regional and statewide topics. Essay length should not exceed 750 words. The writer should have some authority for writing about his or her subject. Our e-mail address is: Letters@wsjournal.com. Essays may also be mailed to: The Readers' Forum, P.O. Box 3159, Winston-Salem, NC 27102. Please include your name and address and a daytime telephone number.