Implications for credit unions and consumers

Interchange fees rarely make headlines, but they quietly power much of the modern payments ecosystem. From fraud protection to rewards programs to free checking, interchange revenue helps fund many of the everyday services consumers expect. That's why renewed legislative attention on interchange, specifically proposals that would regulate or restructure credit card routing—has significant implications for credit unions like UCU and their members. 

A quick refresher 

What is interchange?

Interchange is the fee paid by a merchant's bank to a cardholder's bank every time a debit or credit card is used. For credit unions, this revenue supports:

• Fraud detection and zero-liability protections
• Card servicing and dispute resolution
• Rewards programs
• Free or low-cost checking accounts
• Investments in digital banking and payment security 

Unlike large banks, credit unions do not generate shareholder profits from interchange. Any revenue earned is reinvested directly back into member benefits. 

What the proposed interchange legislation aims to do 

The current proposal would require large financial institutions to enable multiple credit card payment networks on each card, beyond the dominant providers such as Visa and Mastercard. Proponents argue this would increase competition, lower interchange fees for merchants, and ultimately reduce prices for consumers. 

On the surface, that sounds appealing. But the downstream effects (especially for credit unions) are far more complex. 

Why credit unions are caught in the middle 

Although the legislation is framed as targeting "big banks," credit unions would almost certainly feel the impact.

1. Reduced interchange revenue means reduced member benefits 

If interchange revenue declines, credit unions may be forced to offset the loss elsewhere. That could mean fewer rewards, new account fees, or reduced investment in fraud protection and digital tools. 

2. Debit regulation history offers a warning 

When debit interchange was capped under the Durbin Amendment, large retailers saw cost savings, but multiple studies showed those savings were rarely passed on to consumers. Meanwhile, financial institutions responded by increasing account fees and reducing free services. Credit unions worry credit cards could follow the same path. 

3. Security and fraud risks increase 

Routing transactions through less-established networks could weaken fraud monitoring and dispute resolution. Credit unions pride themselves on member protection, but those systems are expensive to maintain without stable interchange revenue. 

What this means for consumers 

While the legislation is positioned as consumer-friendly, the likely outcomes are mixed:

• Lower prices at the register are uncertain
• Card rewards could shrink or disappear
• Free checking and low-fee accounts may be harder to sustain
• Fraud protection and service quality could decline over time 

For credit union members, this creates a paradox: legislation intended to help consumers may ultimately reduce the value of the financial relationship they already trust. 

Why credit unions see this differently than big banks 

Credit unions operate under a not-for-profit, member-owned model. Interchange revenue does not inflate executive bonuses or shareholder dividends; it funds better rates, fewer fees, and more personalized service. 

Applying a one-size-fits-all regulatory approach to credit unions risks undermining a model that has consistently delivered consumer value, financial inclusion, and stability especially during economic uncertainty.

The bigger question policymakers must answer 

If interchange is reduced or restructured, who actually benefits?

• Large retailers? Possibly.
• Consumers? Unclear.
• Credit union members? Potentially at a loss. 

The challenge for lawmakers is ensuring that reforms aimed at increasing competition do not unintentionally weaken community-based financial institutions that exist solely to serve consumers. 

Final thought 

Interchange legislation may sound technical, but its consequences are deeply personal. For credit union members, it could reshape everyday banking—often in ways that are invisible until benefits disappear. 

As this conversation continues, credit unions are not asking to avoid competition. They are asking for recognition that member-owned institutions are fundamentally different and that protecting consumer choice means protecting the financial cooperatives that serve them best.