Competition Would Help Community Banks, Credit Unions
- Community banks and credit unions compete well against the big banks every day.
- Unfortunately, Visa and Mastercard block competition on merchant fees and services on credit cards.
- That is not good for community banks and credit unions.
- The Credit Card Competition Act would help.
Here’s How:
- All community banks and every credit union except one are exempt from the Credit Card Competition Act. No institution with assets of less than $100 billion is subject to the bill at all.
- The bill requires them to do nothing and will help them.
- Debit reforms prove it.
- The Credit Union Times has reported that debit reform created “a powerful way for credit unions to accumulate market share” and “what some say is a huge opportunity for credit unions.”
- According to Texas Trust President and CEO Jim Minge, debit reforms created “a huge opportunity for credit unions like the Mansfield, Texas, Trust Credit Union and everybody else below the $10 billion threshold.” Debit swipe fee reform “applies only to financial institutions with more than $10 billion in assets, which has created a huge opportunity for credit unions — especially those that want to attract millennials.”
- The Philadelphia Federal Reserve published a study on the impact of debit reform on small financial institutions, finding “the volume of transactions conducted with cards issued by exempt banks grew faster than it did for large banks.” The study concluded that “the evidence does not support the claim that competitive forces have effectively imposed the interchange fee ceiling on small banks.”
- A number of credit unions also formed Co-Op Pay to negotiate a better deal with the Star debit network on the fees they pay to complete those transactions. That was only possible because of the competition that exists among debit networks.
- Similar competition among credit networks would improve the bargaining power of smaller banks and credit unions as well.
- Because Visa and Mastercard fix the fees for small banks and credit unions, those small institutions, which typically have higher costs, are disadvantaged.
- Credit union representative John Blum testified on behalf of the National Association of Federal Credit Unions and told the House Judiciary Committee: “Credit unions have a higher per-transaction cost for processing card payments.” Community banks have similar disadvantages because of their relatively small size resulting, in many instances, in the need to outsource card operations.
- Because card networks fix fees for all banks at the same level, however, large banks have for years been guaranteed higher profit margins than their smaller competitors.
- The result is that large banks have a bigger share of both the credit and debit card markets than their share of deposits.
- Centralized price-setting of credit card swipe fees harms smaller financial institutions. More competition in the market would help give them additional levers to try to compete with the largest banks including by allowing them to negotiate among the different networks.
COMPETITION IS BETTER FOR EVERYONE
IT'S TIME TO PASS THE CREDIT CARD COMPETITION ACT