Cuts will be devastating

Dear Editor:

On behalf of the Louisiana credit unions and banks that are represented by our associations, we write to make you aware of our strong opposition to an amendment included in the Senate version of the financial reform bill.

The amendment would dramatically alter the electronic payments system and make it very difficult for card-issuing credit unions and banks to continue to provide a wide array of products and services to consumers. The Senate adopted this amendment without any hearing on the impact of these provisions on consumers or the market, and in the face of tremendous political pressure from merchants intent on passing their costs off on others. We urge the House to reject this amendment.

First, the amendment would require the Federal Reserve, not the market, to set interchange rates for debit card purchases. This goes well beyond the scope of any legislation pending in the House. Instead of making the interchange rate process open, inclusive, and driven by market forces and competition, the amendment forces the Federal Reserve into the role of a price-fixing body. To make matters worse, the Fed is statutorily limited to consider only a fraction of the expense involved in running a debit program and global payments network, with no ability for negotiations. What’s more, nothing in the amendment guarantees that consumers – whose interests should drive public policy in this area – will see any savings at all from the reduced interchange fee.

Our institutions – with their focus on local communities, underserved populations, and rural areas – issue debit and credit cards as a service to their local customers/members, and they continue to do so fairly and honestly. The key that makes this possible is the existing interchange system, which allows banks and credit unions to compete directly in the debit and credit card marketplace.

The impact of the Senate amendment is not limited to interchange price fixing. The amendment grants merchants the unlimited ability to discriminate against certain “forms of payment.” This provision is intended to encourage large retailers to enter into preferential arrangements with large institutions, with discounts and incentives for consumers who use these cards. Consumers who carry cards issued by Louisiana credit unions and banks will be out of luck.

The bottom line is this: A coalition of large merchants is seeking to reduce overhead costs by shifting the responsibility for the payments system entirely onto issuers and, ultimately, consumers. Whether through pending class action litigation in federal court, legislation in the states, or pending bills in the House, the merchants have pursued a number of different attacks on our institutions’ ability to serve consumers, in addition to the recent expansive and harmful Senate amendment.

Louisiana banks and credit unions ask Louisiana’s oppose the price-fixing and anti-consumer interchange language adopted by the Senate. Interchange rates had nothing to do with the financial crisis and are outside the scope of this bill. As an appropriate next step, the provisions of the Senate amendment should be studied by the Congress to begin to understand the real world impact to consumers and the marketplace. In these challenging economic times, Congress should not enact this amendment.

Robert T. Taylor,

La. Bankers Association

Anne Cochran, CLE,

La. Credit Union League