While many of the nation's largest financial institutions have seen declines in revenues from the swipe fees they used to be able to charge merchants for debit purchases, those changes largely did not affect smaller issuers until recently.

New data from both the Federal Trade Commission and U.S. Government Accountability Office shows that many of the nation's smaller financial institutions — such as credit unions and community banks — have been shielded from the overhauls to the financial system, experts within those industries say this is not necessarily the case, according to a report from the Washington Post. In general, the issue that smaller institutions say is impacting them is lower interchange fees, which eat into their revenue streams.

What caused the change?
In essence, the reason these smaller financial institutions are now suffering losses is because the vast majority of major ones are also doing so, the report said. When the federal government put the swipe fee limits in place for debit purchases, it seems as though payment processors simply cut them across the board, and now the amount these smaller institutions receive in the form of revenues has been somewhat restricted.

Part of the Dodd-Frank Act designed to prevent financial institutions, and particularly smaller ones, from dealing with high swipe fee costs may actually be hurting them, the report said. The so-called "routing and exclusivity" provision within that law was supposed to drive competition within the industry but experts instead say it simply leads payment processors to grant less compensation for every transaction they handle.

"The fees that the credit card processors pass on as revenue to banks like ours have definitely gotten smaller," Denise Stokes, senior vice president of Sandy Spring Bank in Olney, Maryland, told the newspaper. "Those companies took a hit when revenue dropped for the large banks, so they passed some of that loss on to us in the form of lower rates on processing fees. Our loss hasn’t been huge, not as high as what the large banks have been hit with, but still, it’s been significant."

Experts within the financial industries say that the problem might only worsen as time goes on and more restrictions are introduced, the report said. Bill Hampel, the chief economist for the Credit Union National Association, told the newspaper that the complete provisions of the law only went into effect in April 2012, and that in the one full quarter since then for which data was available, smaller institutions interchange revenues declined for credit unions for the first time since record keeping began.

Because there is only a small sample size to judge the impact of the new regulations, experts within the financial industry say it's too early for the government to be listing statistics about how much protection its regulations have provided to smaller institutions, the report said. While they concede that the decline in revenues could be a statistical quirk that fixes itself in the next quarter, they also say it may be a sign of what's coming down the road.

The potential impact on consumers
Of course, if these changes to federal banking regulations end up slashing smaller community financial institutions' revenues for more than just one quarter, then experts believe that those banks and credit unions will likely have to start looking for other ways to make money, just as their larger counterparts did after the first wave of new rules hit, the report said. That, in turn, likely means more costs will be passed on to their customers.

"When these banks start losing revenue, consumers often start losing free checking and start paying new processing fees," Trish Wexler, a spokeswoman for the Electronic Payments Coalition, a Washington group representing credit unions, community banks and payment-card networks, told the newspaper. "In the end, when two large industries fight and go to lawmakers to try to resolve those differences, it’s almost always the consumer who winds up with the short end of the stick."

That could be problematic for consumers who made the switch from larger institutions who started raising fees for traditional banking services that used to be free, the report said. If smaller institutions start charging money for the same things, it could lead many consumers nationwide to ditch their banks altogether in what they believe to be an effort to protect their finances. However, going unbanked isn't always the wisest course to take, and could result in major financial difficulties in some cases.

One way consumers should be protecting their finances regardless of what their banks do is to regularly check their credit reports for any unfair markings that may be dragging down their credit rating. If they find any such entries, it can be a good idea to work with a credit repair company, which may help to clear up the problem.

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