For Immediate Release Contact: Rachel Wolf
January 24, 2011 (202) 331-2120
Free Checking Death Bells Premature as Community Banks Keep Consumer Benefits
Swipe Fee Reform Gives Small Banks Opportunity for New Market Share
As big banks threaten the death of free checking and a slew of new account holder fees, community banks and credit unions are reaffirming their commitment to free checking and rewards programs and stand to gain a competitive advantage as a result of proposed swipe fee reforms.
With Visa’s recent announcement that they plan to introduce two-tiered interchange rates, community banks and credit unions got the official confirmation that the swipe fee provisions in the financial reform bill would not apply to institutions with less than $10 billion in assets.
According to analysts cited by American Banker, this development “will put community banks and credit unions at an advantage over larger institutions.”
A recent Credit Union Times article quoted the head of New Jersey’s second largest credit union, Merck Employees Federal, as saying that the big banks’ threats to drop free checking means that credit unions have been handed “a tremendous opportunity” to gain new market share.
In a letter to Illinois banking and credit union associations, Senator Durbin, the author of the swipe fee provisions, wrote:
Visa’s recent announcement confirms what I have consistently argued: that small banks and credit unions will not be hurt by this regulation and will in fact see benefits from it. The January 7 American Banker article cites a payments consultant who said that the industry prediction that the small bank exemption would fail “was simply intended to scare credit unions and small banks to keep them lobbying.”
In fact, local newspapers are already reporting that community banks are “buck[ing the] national trend against free checking” and will continue to offer their customer loyalty programs and free checking accounts. Banks in Missouri, Minnesota and Virginia have all gone public with announcements that they have no intention to get rid of free checking or rewards programs.
“As more community banks reaffirm their commitment to free checking, it becomes pretty clear that the real ‘national trend’ is the fear mongering coming from the big banks as they try to scare consumers away from reform,” said Pat Lewis, who owns a small chain of thirteen Oasis Stop ‘n Go Convenience Stores. “While big banks are spreading misinformation and hollow threats about swipe fee reform, merchants and small banks are offering real rewards and discounts to their customers—just as the law intended.”
Just yesterday, the Wall Street Journal’s Jessica Silver-Greenberg reported that even big banks like Bank of America, Wells Fargo, and Citibank were easing fees in an effort to keep and attract customers. Bill Hardkop, chief executive of LowCards.com, was quoted saying “We are seeing a move toward eliminating certain fees across cards.”
Swipe fee reform is intended to limit swipe fees so that any charge is reasonable and proportional to the service that banks provide through debit cards. Currently, merchants are charged 1 to 2 percent for customers to access their own checking account assets when they pay with plastic. The Federal Reserve has completely prohibited fees similar to swipe fees on paper checks for nearly one hundred years—to the benefit of banks, merchants, and consumers. The law will not apply to banks with less than $10 billion assets—over 99 percent of all banks and credit unions in America.
The Merchants Payments Coalition is a group of convenience stores, retailers, and small business owners whose member associations collectively represent approximately 2.7 million stores with 50 million employees.
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