Request for Legislative Help - Interchange Rates

This afternoon I will be meeting with Congressman Mo Brooks and other credit union CEO’s in the area to discuss the interchange fee issue from the credit union perspective. Credit union members will be negatively impacted down the line if interchange fee rates are drastically reduced. Retailers may want to pay less for accepting debit and credit cards, but they give no guarantees and the law provides no guarantees that consumers will reap any of the benefits of lower interchange fees from the retailers. Those savings will go straight to the retailer’s bottom line and they will be under no obligation to lower retail prices for the goods and services they sell.

If the credit union receives less income on our debit card program due to a reduction in interchange rates, that lost income will either have to be created somewhere else or current services will have to be altered or terminated. Either way, our members would see a distinct difference in some fashion. I doubt that our members would see any difference in the prices that they pay with their local retailer.

The last thing that consumers need right now is less money in their own pockets. The economic impact of the changes to interchange rates has not been evaluated and studied. Our fragile economy does not need laws that could curtail consumer spending. The credit union industry is simply asking Congress to delay implementation of the Durbin Act section that deals with setting a price on interchange rates to allow time for a financial impact study. We will be asking Congressman Mo Brooks for his support of HB 1081 to allow such a study. I agree that some reform is probably necessary in the card payment system but the current pricing solution is woefully inadequate since the pricing model did not address all costs associated with providing a card program.

FYI – Previous posts have addressed the interchange rate fee issue in more detail. If any members have questions or comments over the interchange rate issue, feel free to contact me.

Thoughts and Prayers for our Community

The events that have unfolded since the first tornado siren last Wednesday will forever remain in the hearts and minds of our local community. The devastating storms throughout Alabama have literally changed the face of communities. Loved ones have been lost, homes have been swept away, and communities have been brought to a standstill with crippling long-term power outages. Through it all though we have also seen neighbors helping neighbors, people helping people.

Our thoughts and prayers go out to those impacted by the storms. Together, the communities will rebuild and our lives will return to a level of normalcy that we have come to expect.

We appreciate the patience of credit union members in our process of bringing offices and services back online. The credit union will be helping members in the coming weeks and months to minimize the negative financial impacts of the storms and power outages. An overview of credit union assistance plans are available on our home page now. Additional assistance steps will added as new member needs are identified.

People helping people - it's just the right thing to do.

Overdraft Privilege for ATM's and Debit Cards

Unlike many financial institutions in the country, North Alabama Educators Credit Union has never automatically covered a debit card transaction and charged a fee equivalent to an insufficient funds fee. If the money was not available in the checking account, the debit card transaction was declined.


Federal law was enacted in 2010 that now requires consumers to consent or "opt-in" to the availability for overdrawing their checking account with a debit card for ATM transactions or everyday debit card transactions. This was good consumer legislation since it placed the power of the available overdraft privilege access with a debit card in the hands of the credit union member. North Alabama Educators Credit Union now offers Overdraft Privilege on debit cards with a maximum overdraft privilege amount of $500 to qualified members. CLICK HERE for full details and the OPT-IN form on the NAECU program.


Percentage wise, the numbers range from 50-75% of credit union members signing up nationwide for this service. This doesn't mean that 50-75% of credit union members are routinely overdrawing their checking accounts with a debit card. A much smaller percentage of members will actually ever use overdraft privilege, period. Opting-in to Overdraft Privilege for ATM transactions and everyday debit card transactions costs nothing if the service is never utilized.


Why opt-in to Overdraft Privilege for ATM transactions and everyday debit card transactions? It provides a safety net should an emergency occur. Consider an emergency visit on a weekend where that $150 co-pay is due on the spot and you don't have $150 available in your checking account until payday. Also consider the scenario where you have a cart full of groceries and your debit card is declined at the checkout line due to an insufficient checking balance as a result of a mathematical balancing error or unrecorded transaction. An embarrassing situation can be avoided with the Overdraft Privilege service.

Overdraft Privilege is not a loan and should not be considered a line of credit. The credit union offers traditional overdraft loan protection that all checking account members should pursue to lessen the cost of an overdraft. Members are also encouraged to use our free CU-Online Home Banking and free Memberlink Audio Response services to monitor their available balances and prevent unwanted overdrafts.

Email Data Breach - Epsilon

A data breach at third-party marketer Epsilon has exposed the email addresses and names of customers at major credit card issuers and national retailers. Members of North Alabama Educators Credit Union should know that we were not involved in the email data breach and have no vendor connection to Epsilon.

There is a genuine concern that an increase in phishing attacks, or fake emails, will occur with the intent of stealing personal information from consumers. The normal phishing attempt is to try a shotgun approach and hope to hit on a victim who actually is a client of the business in the fake email. With this email data breach however, the scammers will know exactly what companies the victim does business with. The email data breach greatly increases the odds of fooling consumers into thinking that they are communicating with a company that they are familiar with, when in reality they are not. The breach can also increase the odds of spreading computer viruses and spyware when victims click on embedded links in the fake emails.

Consumers should NEVER respond to an unsolicited email, telephone call, cell phone text, or mail request for personal information. If you have questions over a request received, please contact the company involved at a published telephone number to verify the request. Also do NOT click on links or open videos from emails from trusted sources unless you are 100% certain of the source of the email. Maintaining a good anti-virus program on your computer is an absolute requirement these days.

Be careful out there - things are not always what they appear to be!

Fraud Alert - Fake ACH transaction alert

"The ACH transaction (ID: 8067914072656), recently initiated from your checking account (by you or any other person), was rejected by the Electronic Payments Association." The above communication is an example of a fake email received by one of our members. The email had a fake link included with the message. Please look over the warning message provided below from the National Automated Clearing House Association (NACHA). Further to its notice of February 22, 2011, NACHA has received reports that individuals and/or companies continue to receive fraudulent emails that have the appearance of having been sent from NACHA. These emails vary in content and appear to be transmitted from email addresses associated with the NACHA domain (@nacha.org). Some bear the name of fictitious NACHA employees and/or departments. NACHA itself does not process nor touch the ACH transactions that flow to and from organizations and financial institutions. NACHA does not send communications to persons or organizations about individual ACH transactions that they originate or receive. Be aware that phishing emails frequently have attachments and/or links to Web pages that host malicious code and software. Do not open attachments or follow Web links in unsolicited emails from unknown parties or from parties with whom you do not normally communicate, or that appear to be known but are suspicious or otherwise unusual. If malicious code is detected or suspected on a computer, consult with a computer security or anti-virus specialist to remove malicious code or re-install a clean image of the computer system. Always use anti-virus software and ensure that the virus signatures are automatically updated. Ensure that the computer operating systems and common software application security patches are installed and current.

Op-Ed Letter to the Huntsville Times

Below is the text of a Op-Ed submitted to the Huntsville Times on the interchange fee debate. It has not been published as of this date.

There is an intense debate between financial institutions and retailers over the cost of interchange fee rates paid when a consumer uses their credit or debit card. Retailers think that the cost per transaction is too high. The Federal Reserve has formulated a flat 12 cents per transaction fee that would be paid by the retailer to the financial institution. Currently, the interchange rate fee varies between 1-2 percent of the transaction amount with the average interchange fee costing 42 cents.

The Federal Reserve did not calculate the overall costs of a credit or debit card program, it just computed what the electronic cost was to receive, authorize, and settle the one-time card transaction. The problem with this approach is that the major costs of operating a card program are not being considered. Data processing, 24-hour fraud prevention and detection, personnel, licensing, compliance, and a major expense – fraud, were all costs ignored by the Federal Reserve in computing the flat rate of 12 cents per transaction.

Here’s an example of what the Fed is not taking into consideration: A $2,000 stolen debit card is used at a major retailer to buy a big screen television. Who pays the fraud? Often times the retailer never looks at the card being used. That’s because they are not responsible for the theft amount. The financial institution is left holding the bag for covering the amount of the loss once the unauthorized card transaction is reported. How many 12-cent transactions does it take to cover that $2,000 loss realized by the financial institution? Card fraud occurs every year and retailers pay very little, if any, of the cost.

If the 12-cent flat rate interchange fee is implemented, consumers can expect to see caps placed on purchase amounts to reduce the increased fraud loss exposure. Some have suggested caps of $250 or less on debit and credit card transactions. That major retailer can then enjoy the risks of accepting a $2,000 personal check for that big screen television.

House Bill H.R. 1081 and Senate Bill S. 575 have been introduced by Congress to delay the proposed changes to interchange rates and allow a study to realistically consider the impact on financial institutions and consumers. Financial institutions are hopeful that any changes are done only after a careful analysis of the impact of such legislation is completed. Consumers have shown they want to use debit cards; so let’s not rush to a set price that will ultimately hurt the consumer.

Sincerely,

Greg Olmsted, President/CEO

North Alabama Educators Credit Union

Financial Institutions versus Retailers

Previous posts have discussed the ongoing feud between financial institutions and retailers over the issue of interchange fees. An interchange fee is a fee paid by merchants when they accept a debit or credit card for payment of a purchase. The merchants now pay a percentage between 1 and 2 percent of the transaction amount depending upon the product or service. The Federal Reserve is now proposing to set a flat rate of $0.12 per transaction on all debit and credit card transactions.

The retailers say that they will pass along the savings from the reduced interchange rates back to the consumers through lower prices of their products and services. This may or may not occur in the short term following the pricing change, but will the savings still be there 5 years down the road when no one is talking about interchange rates anymore?

Institutions will lose revenue if this Federal Reserve proposal is implemented. There is no doubt about that. Our existing card program costs (that were not considered by the Federal Reserve) such as fraud, personnel, data processing, licensing fees, compliance, and 24-hour monitoring will still be there. Additional fees would have to be implemented on checking accounts and credit cards to make up the lost revenue.

Credit unions are urging Congress to step back and conduct a compete analysis of all costs associated with maintaining a debit and credit card program. There should be an economic impact review of this Federal Reserve proposal. It may be time for changes in the interchange fee structure, but the process used to calculate the proposed $0.12 flat rate is flawed and will cause more harm than good to consumers.