New rules on debit-card processing start to pinch small banks and credit unions

From: The Washington Post/On Small Business

By J.D. Harrison

Community banks and credit unions are reporting lower debit-card processing revenue as a result of financial reform laws, sparking concerns that they may be forced to impose new fees on customers to offset their losses.

Their experience stood in contrast to new reports published by the Federal Trade Commission and the Government Accountability Office, which suggest that a provision meant to protect small banks from debit-card reform has indeed shielded them from any significant losses in revenue. The provision exempted small financial institutions from reducing their card processing fees (or “swipe fees”) but capped them for large banks. Regulators said the change prompted credit-card companies to create a two-tiered pricing system in which small banks can continue charging customers higher rates each time they use their debit cards.

But community bank and credit union executives say the government reports are premature and don’t necessarily reflect the impact on their businesses.

“The fees that the credit card processors pass on as revenue to banks like ours have definitely gotten smaller,” Denise Stokes, senior vice president of Sandy Spring Bank in Olney, said in an interview. “Those companies took a hit when revenue dropped for the large banks, so they passed some of that loss on to us in the form of lower rates on processing fees. Our loss hasn’t been huge, not as high as what the large banks have been hit with, but still, it’s been significant.”

Local banking executives said they expect the decline to continue in the coming years, which could prompt community banks and credit unions to follow in the path of many of their larger counterparts, adopting new fees and pulling back on free services to make up for lost revenue.

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1 comment. Leave a Reply

  1. Liz Poston, Merchants Payments Coalition

    The big banks and card companies are pushing the line that small banks are suffering to block momentum for further reforms on credit card swipe fees, but the facts just aren’t there.

    But, the Federal Reserve, the FTC and the GAO have all looked at the impact of debit reform on small banks and credit unions and found that the these institutions have not been harmed. Their reports clearly state that small banks and credit unions that are exempt from debit swipe reforms are collecting higher interchange fees than the big banks.

    This article cites banking officials’ claims that they are receiving less money from processors. If this is true, it’s not a result of debit reform. Processors’ fees were not reduced by debit reform at all. In fact, processors have gained revenue from those reforms. If small banks have concerns, then they should take them up with the processors and not blame debit reform.

    Swipe fees are the fastest-growing business expense for American merchants and have been for the last decade . The fees take a hidden bite of more than $400 per year out of the budget of the average American household. Debit reform was a good first step. Now, its time to look at credit card swipe fees. .

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