Greetings and Happy Monday!
It’s time to “release the hounds” on the interchange debate! If you already haven’t already done so, please use our Voter Voice Grassroots Center to contact Senator Cramer and urge him not to support revisions to the Durbin Amendment or any legislation that would impact interchange on debit and credit cards.
Last week, I joined my colleagues from the other financial service trade associations in North Dakota, including the ND Bankers Association and the ND Independent Community Bankers Association, in signing on to a joint industry letter to each member of our North Dakota congressional delegation regarding prospective revisions to the Durbin Amendment of 2011 pertaining to debit card and credit card interchange fees. (See letter at link below.)
While we included each of our congressional members in the correspondence, the letter targets Senator Cramer specifically in direct response to a lawsuit filed against the Federal Reserve by the North Dakota Retailers and Petroleum Marketers in late April. The lawsuit argues that the Fed should lower the cap on interchange fees for debit card transactions.
Credit unions and banks are adamantly opposed to any efforts that would lower or eliminate debit card or credit card interchange fees. In fact, many credit union leaders would consider this a level one or level two threat, right behind the elimination of credit unions’ federal tax exemption.
The Dakota Credit Union Association recently launched the “Contact Cramer” campaign in response as Senator Cramer, who serves on the Senate Banking committee, has been targeted and is being pressured by the retailers’ groups into supporting or co-sponsoring legislation (along with Senator Dubin (D-IL)) that would lower or eliminate interchange fees.
Shortly after the lawsuit was filed here in North Dakota, the Federal Reserve issued a proposal to make changes to Regulation II – which covers debit card interchange fees and network routing exclusivity – that would clarify debit card issuers should enable and allow merchants to choose from at least two unaffiliated networks for card-not-present transactions, such as online purchases. However, the proposal does not make changes to interchange fee pricing, and the Federal Reserve's decision to reopen Regulation II for comment, even for the purpose of “clarification,” really doesn’t do much for our members or consumers who have yet to see the interchange promises in the form of lower prices made by merchants during the first interchange debate. In fact, many of these merchants, specifically the large super or box stores realized significant bottom line gains.
When Congress debated the amendment a little over a decade ago, retailers, merchants, and other supporters promised that consumers would see billions of dollars in savings via lower prices through a government-sponsored price control on interchange fees. The truth of the matter is that those promised savings have yet to materialize for members and consumers a decade later.
In fact, the consequences of Interchange caps introduced by the Durbin Amendment in 2010 have only rewarded merchants who are now taking advantage of the COVID shutdowns to distort the competitive landscape further by restricting credit union members' and consumers their freedom to use safe, affordable, and innovative payment options that they choose. The retailers' associations point to the coronavirus pandemic and consumers' increased use of cards for purchases as a core part of their argument.
Conversely, credit unions have stepped up and demonstrated support for their members and communities facing financial hardships during the pandemic, including waving fees, skip-a-pays without penalty, advances on stimulus checks, low or no-interest loans, loan modifications, and more.
North Dakota credit unions spend a day with the commissioner.
I want to thank North Dakota DFI Commissioner, Lise Kruse, Deputy Commissioner Corey Krebs, and Chief Examiner, Ryan Spah for coordinating and hosting the “Day with the Commissioner” virtual event for state-chartered credit union leaders last week. Nearly all our 20 state-chartered credit unions participated in the online event. The dialogue consisted of an update on the DFI’s legislative activities and the modernization of several statues impacting credit unions and banks; OCC Fintech Charters; Administrative code update objectives and timing; and Blockchain and cyber currency regulation. Deputy Commissioner Krebs also shared information and the Attorney General’s opinion on a North Dakota credit union purchasing a bank charter.
ESG Scoring, should credit unions be concerned?
What the heck is an ESG Score? This subject came up during the “Day with the Commissioner” dialogue last week. An ESG score is an Environmental, Social, and Governance rating for businesses (and FIs) and is criteria that scores and examines how a company performs as a steward of the community and the planet. These can be material, organizational, or important objectives to stakeholders for either financial or non-financial and compelling reasons.
The new mantra following COVID is sustainability. Will credit unions be ready?
As the world starts to look to the future, expect regulators, oversight authorities and policy makers to become more vocal about the need for greater adoption of ESG. Is there a shift from profits to people? Well, for credit unions that has always been the case, but human impact has become more important than economic impact. For-profit banks appear to be shifting that way and have been preparing for this. However, the new reality of the post COVID world (environmental, social and governance) will increasingly become central to the economic equation.
Financial institutions will be feeling the pressure from their customers and from the public at large. Customers want to be associated with an organization or a firm that reflects their views and beliefs; younger generations especially are choosing their preferred financial institutions based on ESG credentials.
Case in point, NCUA Chairman, Todd Harper recently penned an op-ed on the financial risks related to climate change. In a post on his personal LinkedIn page he stated, “I want to ensure that our regulated institutions remain resilient against all material risks, including the financial risks posed by climate change.”
Therefore, can credit unions continue to take a “wait and see” approach on ESG scoring? Especially since public and regulatory expectations are rapidly shifting towards this becoming the “new normal” in rating or scoring business strategy as it pertains to social, environmental, and economic matters. Many of the largest banks are already shifting their strategies to meet the expectations of ESG scoring criteria. If you’re listening to the top financial industry strategists today, many are indicating that those who lag behind in this area will face not only increased regulatory and public scrutiny but also hindered growth. Perhaps financial institutions, credit unions especially, cannot afford to ignore ESG standards.
Recognizing Years of Service
On a positive note, while we have been showcasing many of the awards given out during the Summit in Fargo earlier this month, I think it’s important to personally acknowledge these credit unions who are celebrating milestones in 2021 for their years of service. Congratulations to Postal Family FCU in Fargo, they are celebrating 85 years serving their community! Also, three credit unions are celebrating 80 years: Black Hills FCU in Rapid City; Dakota Plains CU in Edgeley; and Dakota West CU in Watford City.
Have a great week,
Dakota Credit Union Association
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