Monday, October 31, 2011
The Detroit News reports that customers who are disenchanted with the track record of large national banks in the wake of the global financial crises have an additional reason to look with favor upon nonprofit credit unions as their financial institutions of choice: a favorable exemption that they enjoy under the financial reform legislation. Prior to the new law, banks customarily charged significant fees to merchants when bank customers paid for their goods and services with debit cards. Explains the story:
Banks charged those fees, called interchange charges or "swipe fees," to merchants each time a customer's debit card was used. The cost averaged 44 cents each time a debit card was used. The financial reform law limits swipe fees to something between 21 to 24 cents, which some experts say will trim bank revenues by 40 percent.
Some banks, such as Bank of America, intend to compensate for the loss in revenue from swipe fees by charging their account holders a monthly fee for holding debit cards. Many credit unions need not follow suit, however:
But community banks and most credit unions are exempt from the interchange cap, giving them a chance to keep their debit cards fee-free without seeing their income drop. That is, unless merchants start declining cards from financial institutions that are exempt from the swipe fee limit.
The Detroit News notes that this special exemption complements a more basic advantage of the nonprofit form enjoyed by nonprofit credit unions:
[C]redit unions still have plenty of advantages to encourage customers to switch. Fees are lower at credit unions, which are organized as nonprofit institutions. Profits are passed back to members in the form of annual dividends at some credit unions, but most institutions apply profits to keep loan rates lower and saving account interest higher than competing big commercial banks.