There has been a lot of one-sided attention paid to Senator Tester’s Debit Interchange Fee Study Act, with some suggesting that the Senator is taking the side of large banks against Montana retailers. This piece in Forbes by Tim Chen, from a month ago, makes it clear that the real story is much more nuanced, and that Senator Tester is actually protecting the interests of small community banks and credit unions, as he has consistently argued:
Small community banks and credit unions, on the other hand, face a different set of challenges. For community lenders, the per-card cost of fraud protection is far higher, because they are unable to take advantage of the same economies of scale as national banks. They generally see smaller profit margins and higher expenses. Credit unions, in particular, rely on interchange revenue to fund debit rewards programs, high-yield accounts and free checking. Because these not-for-profit institutions convert all of their profits into benefits for their customers, they are unable to simply absorb the loss of swipe fee revenue without passing the pain onto their members.
In a survey conducted by the National Association of Federal Credit Unions (NAFCU), half of respondents said they were considering eliminating free checking, half were considering eliminating or reducing debit rewards, and nearly 9% reported considering layoffs. Tellingly, 75% of credit unions said that they have reviewed or are currently reviewing their business plans to account for lost interchange revenue.
That’s particularly relevant, given that over one-third of Montanans are currently members of credit unions.
Despite the claims of retailers, there is little reason to believe that consumers will see lower prices:
it’s not immediately evident that capping debit interchange fees will result in lower prices for consumers. In fact, a survey by Javelin Strategy and Research found that two-thirds of consumers doubted that the Durbin Amendment would lower prices at all.
There is nothing in the Durbin Amendment that mandates these “savings” be passed on to consumers, either.
It’s easy to be swayed by advertisements paid for by major retailers like Wal-Mart suggesting that Senator Tester is anti-consumer and pro-bank, but this debate is far more complicated than banner ads found on online newspapers and the opinion pieces written by retailers.
It’s an easy narrative to spin this as Big Banks against the consumer, but it’s actually Big Banks against huge retailers, with small lenders caught in the middle. Tester’s bill to delay implementation to study the impact of reducing the interchange fee is simply a pragmatic solution to a complex problem.
Representative Rehberg and his campaign are exploiting an issue with a simple narrative that does not address the real needs of Montana lenders or bank customers—all without even taking a position on the bill.
Let’s not make it easier for him.