BILLINGS. Mont.-One small credit union CEO is asking why a large number of CUs have not stepped up and shared with Congress exactly what they are netting on their average debit transaction.

Sherry Essmann, CEO of the $18-million Montana Health FCU, believes more transparency from credit unions on their debit program costs, especially from big CUs, would have been a big help battling retailers' claims that financial institutions are making a killing on debit interchange.

"We are so adamantly against giving up any of this money, but no one is willing to prove why we can't lose the revenue," Essmann told Credit Union Journal. "Either the bigger credit unions are really making the kind of money the retailers are citing and they don't want to admit it, or it is just very difficult at their credit union to determine the net revenue after costs are taken out that they don't want to take time to dig through their numbers."

A recent study by NCUA suggested that it costs credit unions of more than $1 billion in assets an average of just two cents per debit transaction for which they earn 45 cents. The NCUA study also shows profit margins for credit unions all the way down to $50 million in assets.

Since MHFCU is small, Essmann said, it is not difficult to determine what it costs her credit union to run the debit program and then determine the net revenue on the average debit swipe.

After removing costs for plastic production, mailing, card network transaction fees, card processor monthly processing and database maintenance fees, ATM network access fees, communication costs, fraud prevention and security fees, and card program insurance coverage, Essmann determined that her CU will lose five cents per debit transaction if a 12-cent cap becomes a standard for the industry.

Essmann noted that five-cent loss will be higher if she includes employee time to manage the program, which she estimated is 20 hours a month.

"Retailers had a heyday with this, saying we are making 44 cents per transaction," said Essmann. "I wish some substantial institutions would have stepped up and made a point about what this regulated reduction in fees will do to all of us. We allowed the retailers to tell our story. How the heck do they know what it costs credit unions and banks to run these transactions?"

Bill Lehman, VP of portfolio consulting for CSCU in Clearwater, Fla., acknowledged that in the fight against Durbin there may have been more emphasis by credit unions on hypothetical costs for their debit programs without a lot of hard data.

"Credit unions did a lot of very good communication to Congress. Was it as specific as it could have been? Possibly not. However, I think credit unions relied on the trade associations and organizations such as CSCU to provide that kind of data around actual costs. We produced white papers on the topic, for example."

Understanding how sharing debit card costs from individual credit unions can influence interchange rulemaking, CUNA is working with a number of CUs to provide to Congress and the Fed specific information on these credit unions' debit card programs, said spokesperson Pat Keefe.

Jeff Russell, EVP at the Des Moines, Iowa-based The Members Group, said TMG did some of its own analysis on CU debit card costs and Russell picked up data in discussions with CU clients, as well. "I spoke with more than a dozen credit unions and I have heard anywhere from 17 cents per transaction to 30 cents."

It May Be Too Late

It may be too late now for credit union debit cost data to influence the Fed's final rule, which is expected to be set this Wednesday. But looking closely into the numbers can benefit any credit union, insisted Essmann, who said what she has learned is helping MHFCU plan for the future. "I thought maybe I need to know what our debit program is costing us if the effects of this interchange bill trickle down to us. What will happen to our poor little program? Are we really going to have to look at charging for our checking accounts or finding other ways to pay for it? Even though we are very well capitalized (11.35%) is this new interchange rule going to be what makes us look at what we have to do to stay viable as a credit union?"

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