Reform on Interchange Fees May Come Earlier than Expected for Card Issuers

Reform on interchange fees may come earlier than expected for card issuers. On Thursday June 4th, Rep. John Conyers Jr. (D-Mich.), chairman of the House Judiciary Committee, and Rep. Bill Shuster (R-Pa.) introduced a bill that would allow vendors to negotiate interchange rates with credit card companies.

The bill (H.R. 2965) was introduced in spite of a commissioned GAO study on interchange fees required by the recently passed Credit Card Act of 2009 or Credit Cardholders’ Bill of Rights (H.R. 627). The study came as relief for credit unions and banks alike who feared that similar interchange legislation would be included in the recently passed bill.

Last year Rep. Conyers introduced similar legislation (H.R. 5546) before the committee but the bill never made it to open debate on the floor. The official text of the new bill has not been released yet. However, if it contains similar passages to its predecessor, many credit unions may find themselves in an increasingly competitive position in the credit card market place. H.R. 5546 included an “opt-out” clause exempting all credit unions and institutions with assets under $1 billion from mandated interchange fee negotiations.

The opposite could be true if the newest legislation does not include such a clause. Credit unions often site interchange fees as their only means of offering credit and debit cards to members. According to Reuters, total interchange fees totaled $48 billion in 2008, up from $42 billion in 2007. Credit unions will receive an estimated $3 to $4 billion in interchange fees this year, a key component of non-interest income.