Nov 24 2010

Interchange Regulation: Implications for Credit Unions


When Jane Doe swipes her debit card for groceries, gas, or a book at the airport, little does she know that her behavior supports a whole ecosystem. The merchant certainly gets paid, but only after coughing up an interchange fee. But a provision in 2010’s financial reform legislation is sending a tremor through that ecosystem, directly affecting debit card issuers like credit unions

In Interchange Regulation: Implications for Credit Unions, author Adam Levitin builds on his previous research to dissect the Dodd- Frank Act and, in particular, the Durbin Amendment affecting debt interchange. The Amendment will push down the approximately $17B in debit interchange paid to issuing financial institutions every year. Here are some of the key takeaways from the review and a special Filene survey:

  • Growing credit union debit: Debit card activity at credit unions has grown briskly in the past four years.
  • Curtailed interchange will hurt: According to a Filene credit union survey, debit interchange accounts for between 4% and 5% of credit unions’ gross revenue, while credit interchange is in the range of 1.5% to 2.5%.
  • Reasonable and proportional: The true cost of the Durbin Amendment will become clear once the Fed rules on which charges are reasonable and proportional to the cost incurred by institutions to process debit transactions.
  • Multi-homing: Institutions with less than $10B in assets may be shielded from the “reasonable and proportional” interchange standards, but they will still be subject to “multi- homing”—the requirement that each card be capable of processing a transaction on more than one network.

View the Lunch from Ed on this topic

Report Number 224