North Dakota Lawsuit Heats Up Interchange Debate!

After ten years, the debate is back.  We are asking all our credit unions to respond now! Please reach out to the Senator Cramer’s office and share these concerns.   

​Last week, the North Dakota Retail Association and the North Dakota Petroleum Marketers Association filed a lawsuit against the Federal Reserve to reduce the interchange fees paid to credit unions, financial institutions, and other card issuers each time a consumer swipes their debit card.

We have learned that Sen. Cramer (R-ND) is being targeted by these two groups to either introduce or co-sponsor interchange related legislation.  We understand that the Senator’s office has already heard from hundreds of retailers.

Many of you may recall the battle we had (and lost) just ten years ago when debit card fees were capped with the Durbin Amendment to the 2010 Dodd-Frank overhaul of financial regulations.  The Durbin amendment authorized The Fed to set the cap at 21 cents per transaction, saying it considered the fixed costs financial institutions and card issuers absorb to process transactions.  Credit unions and banks can also charge another cent for fraud prevention and losses.

Then in 2011 the National Retail Federation sued the Federal Reserve Board over the interchange rates set by the Fed as required by the Durbin Amendment.  These rates were for PIN debit only.  The retailers prevailed at the district court level but lost on appeal with the Supreme Court refusing to hear the case.  Because of this loss, the original plaintiffs cannot bring similar complaints.

The North Dakota lawsuit looks to be a carbon copy of the 2011 complaint, which means that it is likely that the North Dakota retailers are a proxy for the national trades.  In a phone conversation with the Senator’s office yesterday, I shared these credit union concerns:

• Interchange regulation is nothing more the government price controls, where legislation sets the fees that one private industry can charge another industry.
• Interchange is the method that financial institutions, card networks and payments processors use to recover expenses for credit/debit cards.
• Examples of expenses interchange covers are:
  • Losses due to fraud and theft.
  • Fraud monitoring.
  • Issuing and reissuing cards.
  • Administrative costs.
  • Profit for all in the service provider chain or they, obviously, would not issue debit or credit cards if they result in a loss to any important provider in the payments chain.
• Retailers focus on the cost of electronic payments while ignoring the problems related to accepting cash.
• Retailers like to say that there is no cost to accepting cash, when arguing against interchange rates but they fail to point out to disadvantages of cash such as:
  • Cash payments slow down the line at the register as customers count their money and salespeople make change.
  • Cash in the register makes a store more susceptible to employee theft and can also exposes employees to the risk of robbery.
  • Safety issued making cash deposits.
  • Resources used to count and recount cash, reconcile the registers at the end of the day.
  • Accepting cash means you risk accepting counterfeit bills by mistake, particularly if you accept bills over $20 in denomination.
• Electronic payments are safer, more efficient and lead to customers spending more money.
• Past issues with the Durbin Amendment:
  • The wounds are still healing from the last interchange fight in Congress.
  • It’s safe to say that both Republican and Democratic members will not want to take sides on this issue.
• Legislation will not solve the interchange dispute as evidenced by the continuing fight over Durbin’s debit price controls. Retailers will not be happy until interchange is at zero.

 
The timing of the lawsuit here in North Dakota is no surprise as everyone has been impacted by the pandemic.  However, one could argue that some businesses, particularly retailers like our local grocery stores, and even gas stations and convenience stores weathered the pandemic better than most, and big box stores reported increases in revenue and market share.

The complaint is that the Fed has set the interchange rate too high.

We are asking all our credit unions to respond and reach out to the Senator’s office to share these concerns.  Basically, what is at stake is the end of “free checking” for our members, putting us at a huge disadvantage with the largest banks as well as the new fintech payment services popping up.  The credit union “Contact Cramer Campaign” is necessary to share our concerns and tell our side of the story.

You can reach out and contact the Senator’s office through our Voter Voice platform. Or, you may call his office directly and tell him not to support any effort that would revise the interchange structure as this would ultimately be harmful and add additional burden to consumers at a time when they are already suffering financially.

Senator Cramer’s contact numbers: Washington, DC (202) 224-2043; Bismarck (701) 258-4648; Fargo (701) 232-8030.

Thank you for your prompt action in this matter!

President/CEO
Dakota Credit Union Association