Interchange Fee Legislation
Contact Congress Today!
Dear Member-
I am writing to you about an issue that could negatively impact you and all members of our credit union. The U.S. Congress is considering legislation that would reduce the amount of interchange fees paid by merchants when they accept a credit or debit card for payment. Interchange fees help pay the cost of processing credit and debit cards payments, with a portion going to card issuers like our credit union to cover risk and operations cost.
How did interchange fees come about? From the mid-sixties, since the inception of a universal credit card, VISA and MasterCard have paid the issuing financial institution of the credit card what is referred to as interchange income. This small fee (approximately 1%, or $1/$100) each time a purchase was paid, by use of a credit card, or when debit cards evolved on a debit card transaction. This fee is to reimburse the financial institution with costs associated with the issuing of the card. Some examples of the costs would be fraudulent transactions, defaulted credit cards, re-issue of cards in the case of fraud, losses from non-sufficient funds checks. For instance, if someone steals your card, and uses it at a retail store, you dispute these charges, the losses are born by the financial institution, not by the retail merchant that processed the fraudulent transactions. Additionally, when a retail merchant has a breach of their data base, credit/debit card numbers are compromised or stolen, the financial institution has to cancel the compromised card and reissue the cards to help prevent you, our members, suffering losses from fraudulent transactions. All of these costs are born by the financial institution, or in this case, First Class American Credit Union not by the retail merchant.
This issue is important to you, a member and owner of this credit union, since roughly 15% of our annual net income is derived from interchange income. It allows our credit union to offer low-or-no cost products and services including free checking, low interest rates on loans, no annual fee credit/debit cards. Interchange income also helps absorb the cost of fraud that takes place on credit and debit cards.
A significant loss in interchange income could mean our credit union would have to charge more fees, increase interest rates on loans, or even suspend some products and services. Credit and debit card programs are an important service, but if merchants don’t pay for their benefits of the system, it’s unfair to you, our members. Your credit union does not want to have to institute fees for your use of this product/service.
Credit and debit cards have removed the risk of payment for retailers. When retailers accept checks, they bear the risk for the check. If the check is bad, the retailer doesn’t get paid. On the other hand, if a person doesn’t pay their credit card bill, or if there’s fraud, then the credit union still pays the retailer. To cover these risks and the cost of the system, there’s a small fee on each transaction paid by merchants, the interchange fee. And the risk is substantial. For instance, recently when Office Max and TJ Max had a card breach, your credit union suffered over $17,000 in these fraudulent transactions. Recently Heartland Payment systems suffered a security breach. Estimated losses to your credit union from the fraudulent transactions, the complete cancellation of cards and re-issue of cards affected cost $8700. These are direct costs to your credit union. This also causes inconvenience to you. While we cancel, re-issue the card, and send a letter to notify you of the cancellation and reissue of your card, you have the inconvenience of not having access to your account in the approximate 10 days it takes to get the new card to you.
Merchants claim that interchange fees add to consumer’s costs and argue that if the fees were reduced, the savings would be passed on to their customers. Yet, in a recent Congressional hearing, a merchant trade representative said his industry would object to any language in the bill that would ensure savings would be passed directly onto the customer. Clearly it’s not about saving consumers money at all.
To express your opposition to harmful interchange legislation please to www.cuvoice.com and send an email message directly to your congressional representative. This is a very user friendly website that once you put your name and address automatically directs your email to your congressional representative. The email site also includes a sample letter for your use to generate a letter to your congressional representative and senator. The more credit union members that weigh in on this issue, the greater chance we have to stop the legislation in Congress. Let YOUR voice of YOUR credit union be heard!
Thank you for your support.
First Class American Credit Union
P O Box 162539
Fort Worth, Tx. 76161
2595 Polaris Dr.
Fort Worth, Tx. 76137
817-834-9777, ext 280
817-834-9770, fax
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