Big banks putting the squeeze on community banks, with Dem help.

[Dover]

As if the Dems support for the bailout weren't troubling enough, now this:

Narrow Options in an Interchange Squeeze Play

American Banker | Tuesday, November 4, 2008
By Michele Heller

Credit and debit cards generate little profit for most community banks, so if interchange rates are reduced as a result of legislation moving through Congress, many could exit the credit card business and restructure their debit-linked checking accounts.

"I would be out of the credit card business, which already is not a money-maker for me, but is there as a service to customers," said John Buhrmaster, the president of the $308 million-asset First National Bank of Scotia in New York. "I would have to keep debit cards, but without interchange income offsetting the costs of services attached to checking accounts that we provide for free — and with the fraud losses that we'd still have to cover — we would not be able to offer those free services."

Such benefits include free checking, free debit cards, free online access, reward programs, and low or no annual credit card fees.

Interchange fees, set by the card associations, are paid by merchant-acquiring banks to issuing banks for every consumer card transaction. Of the many players in the electronic payments system, community banks and credit unions have perhaps the most at stake in House and Senate bills that would standardize interchange rates and create an exemption to antitrust laws, so merchants could bargain collectively with banks and card networks on the fees.

Though card programs are not big profit centers for most community banks, they allow the banks to compete with the largest financial institutions and to foster relationships with their customers. Whatever revenue is reaped helps cover losses and maintain the card system.

..snip..

..The legislation cleared a vote this summer in the House Judiciary Committee, whose chairman, Rep. John Conyers, D-Mich., is the bill's chief sponsor. It was not brought to the House floor. The measure and a similar one in the Senate are expected to gain momentum in the new Congress next year...cont'd

http://www.americanbanker.com/printthis.html?id=20081103R5XXA6RM