LONG BEACH, Calif. — Banks and credit unions rarely see eye-to-eye, so it was no surprise when Dan Berger, president and CEO of the National Association of Federally-Insured Credit Unions, called out "greedy" bank executives responsible for recent bank failures.
"In the past several months, we've seen the biggest bank failures since the 2008 financial crisis," Berger told 650 credit union executives Wednesday at the trade group's annual conference in Long Beach, California. "The causes can be traced to greedy, profit-seeking bank executives. They focused on chasing yields, taking in too many uninsured deposits and making investments that led to losses when interest rates rose. Although banking regulators did flag concerns over the past several years, not enough was done to mitigate these risks."
Yet when it comes to legislative and regulatory battles, credit unions are closely aligned with banks in pushing back against two major issues that could severely impact financial institutions — efforts to reduce interchange "swipe fees" and to cut credit card late fees to just $8.
The Consumer Financial Protection Bureau in particular has long been a target of banks outraged by CFPB Director Rohit Chopra's repeated assaults on so-called junk fees. Credit unions have jumped into the fray by
"In financial services policy, the CFPB has been on a crusade for what it claims is consumer protection," Berger told credit union executives gathered in the sunny, seaside city 35 miles south of Los Angeles. "They'll force many credit unions to reconsider the products and services you offer, many of which are consequential to your members' financial success."
NAFCU says credit unions would be severely impacted by the CFPB
As many as 85% of credit unions — some 2,670 entities that issue credit cards — also qualify as small businesses. For banks, that number is much smaller — just 451 institutions are considered small entities with assets of $850 million or less, as defined by the Small Business Administration.
Ann Petros, NAFCU's vice president of regulatory affairs, said credit unions are confident that they have a strong legal argument against the CFPB because the agency failed to convene a small business review panel, a requirement for any major regulatory change that causes an economic impact of $100 million or more on small businesses, Petros said.
"The CFPB really didn't follow the process that they are required to for this rulemaking," Petros said. "They just didn't follow the law."
When the CFPB finalizes its rule, trade groups will sue under the Administrative Procedure Act that governs the process by which federal agencies issue regulations, prohibiting rules that are "arbitrary and capricious."
"We really don't think the CFPB did a very good job in justifying why $8 — it's completely arbitrary and certainly not enough to cover the fees [credit unions] are incurring in collecting on past-due accounts," Petros said.
To make its case against interchange fees, NAFCU is lobbying heavily against
"We are covering every single office on the Hill. This is a multiyear battle," said Greg Mesack, NAFCU's senior vice president of government affairs. "Interchange is probably one of the biggest issues for us. Lawmakers know if they hook interchange to a bill, that bill becomes toxic immediately."
NAFCU is working to ensure that the interchange bill is not attached to a farm reauthorization bill that may be passed by late September, or to an omnibus spending or defense reauthorization bill, both due in December. For some credit unions, as much as 50% of their noninterest income comes from interchange fees, Mesack said.
"This is a war on the noninterest income of credit unions," he said. "We go in and make the case and affirm that this bill does not help consumers."
Banks and credit unions have blasted the proposed interchange legislation, claiming that mandating the way credit cards are routed would potentially force small credit unions and banks to potentially stop issuing credit cards.
The Credit Card Competition Act, initially introduced in July 2022, has received new supporters including co-sponsors Sen. J.D. Vance, R-Ohio, a junior member of the Senate Banking Committee; Sen. Peter Welch, D-Vt.; and Sen. Roger Marshall, R-Kansas. A House version of the bill is in the works, backed by Reps. Lance Gooden, R-Texas, Thomas Tiffany, R-Wis., Jefferson Van Drew, R-N.J., and Zoe Lofgren, D-Calif.
The bill would require banks with $100 billion or more of assets to offer merchants a choice of two unaffiliated card networks such as Mastercard or Visa plus another option like NYCE, Star or Shazam. While there is an exemption for small credit card issuers, Mesack recalled that the Durbin cap on interchange fees more than a decade ago was one of the main reasons large banks and credit unions
"Not one penny of the savings from the Durbin debit cap went to consumers," Mesack said. "It went straight to the bottom lines of retailers."
The Durbin amendment to the Dodd-Frank Act of 2010 permitted the Federal Reserve to cap interchange fees charged to merchants every time a consumer swiped a debit card. The cap was set at roughly 24 cents for the average transaction, almost half the previous average of 44 cents. As a result, big banks including JPMorgan Chase and Bank of America discontinued free checking accounts or began charging customers for deposit accounts that were once free.
NAFCU cites
"Interchange is probably the biggest issue for us," Mesack said. "We are fighting this tooth and nail."
