Debit Fee Interchange Income: All Clear or Danger Ahead?

 In our last post, CUs’ Checking-Related Fees = Better Value for Consumers, we noted that increases in the credit union system’s other operating income as a percentage of average assets are generally off-setting recent declines in fee income stated on the same basis.  While this is certainly good news, a key component of other operating income, debit interchange fees, came under pressure in 2011 with the implementation of the Durbin Amendment.

Under the Durbin Amendment, debit card issuers with total assets ≥ $10 billion had their debit card interchange fees capped at $0.21 per transaction, plus 5 basis points multiplied by the transaction’s value.  Furthermore, non-exempt financial institutions that comply with the Fed’s fraud-prevention standards may charge an additional $0.01 fee.  Some analysts and regulators thought the Durbin Amendment might also indirectly lead to a decline in debit card interchange fees for exempt financial institutions, i.e., those with total assets < $10 billion.  Prior to the Amendment’s implementation, there was some concern that card networks might not offer two-tiered fee structures to accommodate higher interchange fees for exempt financial institutions.

The following graph, based on a Fed survey of payment card networks released earlier this year, shows average debit interchange fees in 2011 for both exempt and non-exempt financial institutions.  Average fees are shown for both the nine months prior to implementation of the Durbin fee cap (January-September 2011) and the three months after its implementation (October-December 2011).