By Ray Birch
WASHINGTON—With the credit union trade groups aggressively opposing an interchange bill now before Congress, the Defense Credit Union Council (DCUC) said it is especially concerned the proposed changes could hurt the financial and physical lives of military members.
DCUC President and CEO Anthony Hernandez told CUToday.info he is worried not only about how the new credit card rules would hurt the pocketbooks of young servicemembers, but also the potential threat to their safety as they embark on overseas missions to defend the country.
Hernandez shared his concerns after the Merchants Payments Association hailed the introduction of the new bill in the Senate co-sponsored by Sens. Dick Durbin (D-IL) Ill. and Roger Marshall (R-KS). Their Credit Card Competition Act, that would give merchants the ability to process many Mastercard and Visa credit cards over different networks.
“Late last week, the merchant lobby circulated a graphic (see below) and some talking points in favor of legislation what would impose government price controls on credit card interchange,” Hernandez told CUToday.info. “Merchants and retail groups support this bill because they want the federal government to pad their bottom lines by requiring that banks and credit unions route credit card transactions to the cheapest network.”
Hernandez said merchants claim this legislation will lower prices for consumers.
“We know this is not true. This is the same story big box retailers told Congress about the Durbin Amendment in 2010,” said Hernandez. “As expected, the 2010 Durbin Amendment resulted in higher profits for the nation’s largest corporations. Sadly, merchants did nothing to lower prices for working Americans. Instead, it drove up the cost of basic banking services for consumers – hitting lower-income Americans and military families the hardest. Driving up the cost of banking services is bad enough, especially for junior military members.
Changed Ecosystem
In terms of credit union impact, Hernandez said regulating the largest institutions and payment networks will force changes to the entire credit card payments ecosystem.
“That means credit unions will have to pay for things like updates to technology and reissuance of cards,” he said. “These updates cost billions of dollars and it will disproportionately affect credit unions that do not have the resources of big banks. Many smaller institutions will be forced to exit the credit card business altogether or pass through the costs on to consumers.”
Hernandez added that consumers pick their credit cards based on the trust, security, benefits, and protections the cards offers.
“In our economy, that means payment networks need to be at their best to win consumer loyalty because they develop many of the features that accompany credit cards,” he explained. “Instead, retailers will route transactions over the cheapest networks—many of which have underinvested in their platforms with little concern for security innovations or consumer benefits. Merchants will not choose the most secure network or the one that generates the greatest value to consumers, but the cheapest route.
Anthony Hernandez
“If consumers lose the ability to choose their network, more credit card transactions will likely go the cheaper networks, which are less secure, less reliable, and do not provide a suite of rewards and protections for consumers,” Hernandez continued. “Having your personal data compromised is always bad, but particularly so when members of our military are in harm’s way. This goes beyond the nuisance of locking everything down while engaging in combat operations. Loss of personal data in enemy hands threatens operational security. These are second and third-order effects that threaten operational security and mission accomplishment.
‘Bad Things Happen’
“Let's say you're a member of a large military unit and you are going to deploy soon. So, you start buying things in advance of your deployment,” Hernandez explained. “You’ve got to take care of your family. You’ve got to buy certain things. You then start to set patterns. If your data is compromised the enemy can read those patterns. And when things become predictive bad things happen.”
Hernandez insisted that congressional leaders need to hear from credit unions in their districts.
“DCUC encourages credit unions to engage directly or via their leagues and offers a sample letter that can be tailored for each credit union,” he said. “We need to focus on real-world impacts and downstream effects against the powerful interests behind this legislation. When credit unions work together, there is no mistaking the collective impact of over 130 million members making a huge difference for our families and our country.”
A ’Hollow Call’
Hernandez said he is glad credit unions understand that “now more than ever we need to put consumers first and reject the hollow call for new laws that would make basic financial services more expensive and less secure for millions of working-class Americans and along with the military members who defend our nation.”