In the quiet corners of rural Montana, credit unions and community banks offer a unique ability to focus on bringing value to Main Street rather than Wall Street. These institutions have a vested interest in the success of their communities and often serve as economic anchors, supporting local businesses, farms, and ranches. Local banks offer a unique ability to build personal relationships and offer services dedicated to fit the specific needs of a rural community. However, their ability to do just that would be at risk if federal legislation is passed that would restrict their ability to continue community-focused services.
New regulations on interchange fees and routing mandates on credit card transactions coming in the form of the 2023 Credit Card Competition Act would have significant implications for our rural banks.
We’ve seen this before. A similar set of regulations, known as the “Durbin amendment,” were imposed in 2010 related to debit card transactions. That legislation resulted in small banks having to raise fees on customers and cut back on services offered, for instance free checking.
Lawmakers in 2010 were convinced that lower transaction fees for retailers would mean lower costs for consumers, but that turned out not to be true. A Federal Reserve Bank of Richmond study in 2014 showed that 98.8% of retailers either raised prices or kept them the same after passage of the Durbin amendment.
Another analysis, from the Mercatus Center, found that nearly 75% of local financial institutions saw reduced earnings after the Durbin Amendment. Credit unions lost $1.1 billion in 2016 alone, according to the Credit Union National Association. The massive loss in interchange fee revenue cut down on the funds credit unions and community banks use to cover operational costs, expand services, and keep fees low.
In the aftermath of the Durbin amendment, over one million Americans, primarily in marginalized communities like rural towns, lost their bank accounts.
In 2011, there were approximately 14,000 banks and credit unions with assets under $10 billion; in 2022, about 9,000 are left. This decline was widely a result of mergers and consolidations as credit unions and banks sought to improve operations and expand their footprint, in part to adjust for the reduced revenue tied to overreaching federal regulation.
While it’s true that the sponsors of the Credit Card Competition Act included an exemption for small banks and credit unions, we know this exemption is meaningless. The same type of exemption was included in the Durbin amendment.
Policies like the Durbin Amendment and the Credit Card Competition Act fail to consider the dire consequences for credit unions and community banks operating in rural areas. Reducing their interchange fee revenue deprives these institutions of a crucial source of income, leading to decreased services and increased fees for members. Moreover, it would undermine the financial stability of rural banks, potentially forcing some to close their doors and leaving our rural Montana communities in financial distress. We have seen this happen for the past decade, and it will only get worse if the Credit Card Competition Act passes.
In the Montana legislature we see legislation related to credit card fees nearly every session. This is because Washington has not done enough to address these issues at the federal level. The Credit Card Competition Act would be a step backward, causing even more problems for states with rural banks.
Policymakers should focus on supporting and strengthening Montana’s credit unions and community banks. These institutions provide financial stability and growth for often neglected areas. By doing so, we can ensure a brighter economic future for Montana.
Representative Steve Gunderson represents HD 1 in Lincoln County. Representative Ron Marshall represents HD 87 in the Bitterroot. They both serve on the House Business & Labor Committee.