Local Credit Union CEO Takes Stand against Interchange Fee Bill in Connecticut

4.2.2024

Members,

It's important that the credit union remains relevant in our community, and to do so the credit union should keep a keen eye on what’s going on at the state capital. Recently, I went up to Hartford to personally testify against SB1460, An Act Concerning Interchange Fees on Electronic Payment Transactions.

The bill looks at reducing the interchange income that the credit union could earn. There seems to be this belief that credit unions (and yes, I’ll admit banks in on this one too) earn significant income from interchange fees. Well, that’s not exactly true. While the credit union earns interchange fee income off of all the transactions that a member will use their debit and credit card for, we’re lucky if we get half a penny on those transactions.

Now, if we were as large as say, Bank of America, a half a penny could add up to a nice chuck of change; however, the reality of our tiny credit union is that the income we get from this hardly covers the expense to run the debit and credit card programs, let alone earn a net profit from it.

With that being said, I went up to Hartford to testify before the committee and offered up my knowledge base of interchange fees and strong stance against the bill.

I’ll share the same thing I shared at the capital:

• Interchange fees were originally designed to cover the expenses and the losses from fraud and disputed transactions.
  • Yes, the credit union has to write off, or in other words, fully expense the transactions that are fraudulent. This impacts our income statement and overall finances. 
• Interchange fees that are charged to the merchant, say the 4.50% of a transaction, are not what the credit union receives. We get about 5 basis points of that 4.50%, and that little amount is what needs to cover our expenses, which it often does not.
• There is a major concern of who will be held responsible if the interchange rails are to carry the sales tax, how would this be monitored, and how would this information for sales information like: name, debit card number, address, etcetera, be managed?
  • If there is a breech in the data, does that fall back on the credit union when we’re not the entity that is managing the transactions?
  • This poses a huge liability and an unanswered question at this point in time.

Finally, the credit union operates as a financial cooperative that is not-for-profit. We don’t have paid shareholders and in fact, the board of directors, committee members, and many others are all volunteers of our organization; yet we have the same expectations, regulations, and financial scrutiny that Bank of America has and we’re still chugging along and doing what we can to remain relevant, financially sound, operationally well, and most of all – your credit union in this community.

The Hartford Business Journal quoted my written testimony, if you'd like to check it out, feel free to read it!

Thank you for being a member and thank you for your continued support,

-James A. Higgins, MBA, CUDE

President and CEO