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VIA FACSIMILE (202) 225-2082 January 4, 2011 The Honorable Spencer Bachus Chairman, Designate Committee on Financial Services United States House of Representatives Washington, DC 20515 Dear Congressman Bachus: On behalf of the League of Southeastern Credit Unions (LSCU), the 311 credit unions in Alabama and Florida we represent, and the 6.3 million members they serve, I want to thank you for your letter of December 17th to the Federal Reserve urging a cautious approach to the development of final rules to implement the debit interchange provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Alabama and Florida credit unions are grateful that you recognize the problems associated with the language in Section 1075 of the law and we would urge you to bring this issue before the Committee for Congressional oversight. As you know, during Senate consideration of the bill, Senator Richard Durbin (D-IL) added a provision requiring the Federal Reserve to implement a structure to regulate debit card interchange fees. This amendment was not considered in the House discussions, nor in the Senate Committee discussions of the bill, and indeed received very little debate before adoption by the Senate. Much of the debate (such as the promised savings to consumers, the benefit of the exemption for smaller issuers such as credit unions, and the ability of the Federal Reserve to develop a rule that meets all of the stated goals without harming competition or consumers), was based on speculation, not fact. We believe that as the dust has settled, and the proposed rule by the Federal Reserve gives us a clearer roadmap of the consequences of Section 1075, it is critical for smaller issuers and their consumers that the issue of federal price controls of debit card interchange rates be examined more fully. Since this issue first appeared, credit unions have become increasingly concerned about how an artificial limit, such as the one contained in Section 1075 would affect their ability to serve their members. The proposed rule has further inflamed that concern, as the price controls proposed will not even cover the cost of offering debit cards. As you may know, debit card issuers bear all the risk of loss in a debit card transaction, on top of the normal business costs associated with offering the program. The question now becomes, how will issuers recover that loss? Most in the industry agree that one of the first casualties may be free checking. Credit unions pride themselves in offering the lowest cost financial services and products, but the unbelievably low fees allowed under the proposed rule, when coupled with already strained Return on Assets, cannot simply be absorbed. Let me be clear, credit unions do not want to increase prices for their members especially during these tough economic times. In fact, the very basis of credit unions is the principal that savings be passed on to the members in the form of lower costs and higher returns. It is their very nature and inseparable

from their business model. Money not spent by the credit union does go back to their consumers. Can the large retailers who pushed this legislation make a similar claim? One argument made during the limited debate on the Durbin amendment was that issuers under $10 billion in assets would be exempt. Yet as you pointed out in your letter to the Federal Reserve, the unintended consequences of this amendment may actually result in an uneven playing field in which credit unions and community banks find themselves at a disadvantage. Concentration of debit card offerings into the hands of a few larger institutions will only concentrate deposit accounts, furthering one of the problems Dodd-Frank purported to fix. While we appreciate your willingness to assure Congressional oversight over the proposed regulations, the very policy itself must be revisited. The costs for consumers, the increased risk of concentration of the market, and the risk faced by smaller issuers are all real. What is not certain is any potential benefit to consumers. While costs of financial services for consumers would almost certainly go up if this rule is implemented, there is no guarantee that they would receive any benefit relative to consumer prices. This legislation has created an environment for certain higher prices for consumers, with little likelihood of lower prices at the other end of the transaction line. In addition, this legislation has set the stage for the acceptability of a policy in which the government puts price controls into place to benefit one industry at the expense of another. Will wholesale suppliers next be told what their mark-up over production costs will be? Certainly, there are groups that would like to lower the cost of inventory. If so, will a government agency be given the authority to determine which production costs may be considered in calculating the mark-up? These are all concerns shared by credit unions across the country. We are very pleased that you have shared your concerns about the rule making process with the Federal Reserve. We would encourage you to continue the effort to ensure that the final rule does not result in the problems we see coming from Section 1075 and the resulting regulations. We ask that the Committee use its critical oversight responsibilities to explore ALL the issues involved in this serious change, and to examine not only the process, but the policy as well. Thank you for your consideration of this important issue. I look forward to speaking with you soon. Sincerely,

Patrick La Pine President/CEO League of Southeastern Credit Unions


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