Wednesday, June 8, 2011

Interchange Amendment Fails - Canada Example

A replay of the Senate debate on the interchange rate fix legislation was covered last evening. It is disappointing that the final vote failed although we are pleased that both Alabama Senators voted for the bill. We thank Senator Richard Shelby and Senator Jeff Sessions for their support on behalf of Alabama consumers.

Senator Durbin noted in his comments that Canada retailers do not pay any interchange rates, implying that that system is superior to the system in the United States. Perhaps Senator Durbin should have compared the consumer side of the equation in Canada. A quick online search of Canadian credit unions show a considerable increase in the amount of banking fees paid by account holders as compared with credit unions in the United States. Monthly service charges range from $15 to $6, depending upon the type of checking account. Electronic transactions in Canada generally offer 5 to 10 free transactions per month and then a per transaction fee of $1 or more is charged. There were also several examples found where $500 daily electronic transaction limits were in place. This limit is most likely due to minimizing the fraud exposure on behalf of the institution.

It would be interesting to compare retail prices of products on common items sold in Canada as opposed to the United States. Given the fact that interchange rates are not being paid by retailers in Canada, they should be selling their products for a lessor price. My guess is that prices are not that much different though. Certainly not enough to cover the additional banking fees being paid by consumers in Canada.

If credit union members want a glimpse of how interchange rate changes can affect their bottom line, look online at credit unions in Canada and look over their fee schedules. It is unfortunate that Congress did not choose to perform a consumer impact study that would have been required in the interchange fee legislation that was ultimately voted down.

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