[Congressional Record Volume 156, Number 87 (Thursday, June 10, 2010)]
[Senate]
[Pages S4839-S4841]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
SWIPE FEES
Mr. DURBIN. Mr. President, 2 weeks ago, we considered the Wall Street
reform bill, and the occupant of the chair was a key player in the
activities of the Banking Committee that led up to the floor
consideration.
I offered an amendment during the course of that debate on the Wall
Street reform bill. I knew that the basic reason for Wall Street reform
was twofold: holding big banks accountable for how they operate and
empowering consumers to make good financial choices.
The bill Senator Dodd and the committee brought to the floor was a
strong one. In the process of taking up and voting on amendments, in
many ways the Senate made the bill even stronger. Now a conference with
the House is underway, and I look forward to seeing the best Wall
Street reform bill possible signed into law by President Obama.
During the course of that debate, I offered an amendment to the bill
that attracted a lot of attention--more than I anticipated. My
amendment sought to give small businesses and merchants and their
customers across America a real chance in the fight against the
outrageously high swipe fees charged by Visa and MasterCard credit card
companies.
Nearly $50 billion in credit and debit card interchange fees are
collected each year, and this interchange system is entirely
unregulated.
To explain the process, if I go to my favorite restaurant in Chicago
tomorrow night with my wife and receive my bill and hand over my credit
card to that restaurant--and let's say the bill is for $100--the credit
card company will honor the bill, pay it to the restaurant, but then
charge the restaurant as much as 3 percent of the bill for the use of
my credit card, and that is known as a swipe or interchange fee.
You might say, well, doesn't the restaurant negotiate with the credit
card company about whether it is 3 percent, 2 percent, or 1 percent?
The answer is no. Those fees are dictated by the credit card companies.
Merchants and businesses have little power in even challenging, let
alone changing, the so-called interchange and swipe fees.
Other than my credit card, I could present something known as a debit
card, which more and more people use every day. A debit card, instead
of allowing the Visa company to pay my bill, and then I pay them,
actually would deduct the money from my checking account, so the money
moves directly from my bank through to the bank of the restaurant to
pay the bill.
In that situation, the credit card company is not on the hook very
much because the money is moved directly from the checking account to
the account of the restaurant. It is not a question of whether I pay my
monthly bill or whether I pay the interest on that bill; there is very
little risk associated with the so-called debit card.
Yet what we are finding is that the credit card companies are
charging the same fees for debit cards they are charging for credit
cards. Merchants and businesses across America say there is not as much
risk associated with them, so why are they charging more? That is the
basic mechanism that I approached with my amendment, which was adopted
on the floor with 64 Senators voting in favor.
Visa and MasterCard dominate the credit and debit card industry in
America. They establish the interchange rates that all merchants--and
by extension, their customers--pay to banks whenever a card is swiped
or used. There is no one watching out in the process for businesses and
consumers. There is no agency of government with the authority to
ensure that these fees charged by the credit card companies are
reasonable. Visa and MasterCard just set the fees as they see fit and
tell the merchants to take it or leave it. But how easy would it be to
run a restaurant or major business in America today if you didn't
accept credit and debit cards?
Visa and MasterCard envision an American economy where ultimately all
sales are conducted electronically across their networks, where they
and the card-issuing banks receive a cut of every sale and transaction
in America.
It is no surprise they want as big a cut as possible. They want to
maximize their profits. Right now, they have the market power to make
that happen. They can raise their fees whenever they want.
Who ends up paying the highest interchange fees charged by these
credit card companies such as Visa and MasterCard? Small businesses.
Many of them are literally driven out of business by these high fees
they cannot control and cannot negotiate. They don't have the market
power to do it. Those who stay in business have to raise the prices on
customers to pay the fees.
My amendment requires debit card fees to be reasonable, and it cleans
up some of the worst abuses by Visa and MasterCard.
Yesterday, we had a hearing in the Senate Judiciary Committee and
present was an Under Secretary in the Department of Justice, Christine
Varney. She is in charge of the antitrust section. I asked her whether
the recent reports that had been published in many newspapers across
America that the major credit card companies are being investigated by
the antitrust division were true. She said she could not comment on the
case other than to say they have verified the fact that an antitrust
investigation is underway against Visa and MasterCard.
I applaud that. I understand why she could not go into detail. I
applaud that investigation. These major credit card companies have
become so big and powerful and coordinate their activities so much that
I think such an investigation is long overdue.
My amendment requires that debit card fees be reasonable, and it
cleans up some of the worst abuses. The amendment was adopted with 64
Senators voting in favor, including 17 Republicans. It was a major
victory for small business and merchants and consumers across America.
It will help small businesses grow and create jobs, which we definitely
need in this economy, and it will put us back on sound economic
footing. It will help American families, each of whom pays an estimated
$427 a year, to subsidize this $50 billion interchange fee system for
Visa and MasterCard.
I thank each of my colleagues who joined me in that vote, including
the Presiding Officer.
I know my amendment has earned me the wrath of Wall Street, the wrath
of the big banks, and the wrath of Visa and MasterCard. Even before the
last votes were counted on my amendment, Visa and MasterCard and
lobbyists for the big banks were already plotting a way to kill this
amendment. Financial industry lobbyists are swarming the Halls of
Congress as we speak. You can hear the stampede of the Gucci loafers
around every corner. They are arguing that reducing debit card
interchange fees to a reasonable level, as my amendment would require,
is unacceptable. In their view, there is absolutely nothing wrong with
charging unreasonably high fees in a business where there is virtually
no competition.
I urge my colleagues to consider the enormous benefits of the
amendment that was adopted. Our language will help every single Main
Street business that accepts debit cards keep more of their money,
which is a savings they can pass on to their consumers. Every grocery
store, convenience store, flower shop, and every restaurant will be
able to reduce the fees they paid to the big banks for debit card
transactions.
This is a real boost for that industry and, believe me, they know it.
They are fighting hard to convince Members of the House now that what
we did in the Senate is the right thing for small business across
America. It has led the Merchants Payments Coalition, this group that
came together in support of my amendment--2.7 million merchants,
representing 50 million American employees--to endorse this bill--the
overall bill--and to work for its passage because of this amendment.
It is not just businesses that benefit from the amendment. Charities
will benefit. Think about that. Charities that accept donations by
debit cards will see a savings. Universities will save money on card
fees, and so will public agencies, such as your local motor vehicle
commission in your home State, public transit agencies, and even the
U.S. Postal Service.
Also, under my amendment fewer taxpayer dollars will be spent by
local, State, and Federal Government agencies for the payment of these
interchange fees.
[[Page S4840]]
I am going to hold a hearing next week in my appropriations
subcommittee about the amount of money paid by American taxpayers each
year to Visa and MasterCard for interchange fees. It is an enormous
amount of money. It is an amount that I think is unwarranted because,
basically, the Federal Government is going to pay these bills. No
question about it. Yet some of the interchange fees charged to our
government are much higher than the fees charged to businesses.
Last year, the city of Chicago paid $7.5 million in interchange fees.
The Illinois Tollway authority paid $11.6 million in interchange fees.
Our cities' transit agencies and units of government could put this
money to better use than paying Visa and MasterCard.
Next week, this hearing will bring out the amount of money paid by
the Federal Government. Consumers will benefit from the amendment as
well. Debit interchange fee reductions will lead to lower consumer
prices at grocery stores, convenience stores, and other retailers that,
unlike Visa and MasterCard, have to vigorously compete with one another
on price. They will have an incentive to pass the savings on to their
consumers.
My amendment explicitly allows merchants to provide discounts when a
customer pays by cash, check, or debit, instead of credit.
I told a story on the Senate floor before, and I think it illustrates
perfectly what we are up against. When you go to the airport to leave
town, there are places where you can buy magazines, newspapers, chewing
gum, and the like. I was standing in line at a register while somebody
in front of me took a package of chewing gum, put it on the counter,
and handed over a credit card.
I noticed as she rang up the $1.50--whatever it was--and started
running the credit card through that the cashier was doing this
routinely. I asked her afterward, when I was next up: Is that the
lowest amount anyone put on a credit card while you have worked here?
She said: No. Thirty-five cents is the lowest amount.
I guarantee that merchant lost business, probably on the $1.50,
certainly on the 35 cents, because they have to pay the credit card
company regardless of the amount of the purchase, and the credit card
company forbids, prohibits the merchant, the business from saying: You
can't use a credit card for something, for example, that is under $5.
They cannot do it.
What we are trying to do is create some sense where we do not
penalize merchants and small businesses. I know Visa and MasterCard are
throwing a lot of money into their campaign against my amendment. It is
one of the most fiercely lobbied provisions I have seen since I have
served in the Congress. I have heard their arguments, and they just do
not hold water.
They argue that there have been no hearings in Congress on the issue
of interchange fees prior to my amendment. Actually, in the last 5
years, there have been six congressional hearings specifically on
interchange fees, plus two reports from the General Accountability
Office.
The second myth they have been pushing is that my amendment will hurt
small banks and credit unions. Mr. President, we discussed this after
the amendment passed, when you were on the floor. As a result of my
amendment, which I changed at the last moment, it says that any
institution issuing a credit card with less than $10 billion in assets
is not covered by the provisions of my amendment--$10 billion. That
means that out of 8,000 credit unions across America, exactly 3 would
be governed by my amendment. Yet the credit union industry and all of
their representatives are roaming all over Capitol Hill saying: This is
going to kill us. In fact, they are specifically exempted from this
amendment.
When it comes to banks, the $10 billion asset threshold would mean
that out of about 8,000 banks in America, only about 90 will end up
being covered by this amendment.
You say to yourself: Durbin, why did you go through all this trouble
for 90 banks and 3 credit unions? It turns out that these 90 banks and
3 credit unions do 65 percent of the credit card business in America.
The big boys are the ones who will be touched by this amendment, as
they should be.
I heard this line from the Independent Community Bankers of America
and the Credit Union National Association, that they are the ones who
are going to be hurt. Three credit unions, 80 banks, or 90 at the most,
will be affected by it.
I just sent a letter to these organizations telling them what I have
been telling small banks and credit unions in my home State of
Illinois--that my amendment will not disadvantage them. In fact, we
went to great lengths to protect them. We exempt 99 percent of the
banks and 99 percent of the credit unions.
Visa and MasterCard cannot come here and lobby and expect anybody to
believe them because we know what credit card companies do to you. They
do not have a lot of friends on Capitol Hill. The big banks, the ones
that issue the credit cards, cannot come around either, basically
because the Wall Street reform bill was focused on these banks and some
of their nefarious activities, at least questionable activities. Whom
do they have fronting for their arguments? The little credit unions
that come in and say this is going to be terrible. What they do not
tell Members of Congress is that the Durbin amendment specifically
exempts them from any coverage of this amendment.
My amendment does not allow merchants to discriminate against cards
issued by small banks or credit unions. That is another argument they
make: If the Durbin amendment goes through, a lot of businesses and
restaurants will not take the credit cards issued by the small
institutions. There are specific provisions now that prohibit
discrimination against the issuer of the credit card. Those are not
changed by the Durbin amendment.
Credit unions fear the card networks will reduce their fees if this
provision is enacted. Imagine--think this through. Since the Durbin
amendment will not change the fees small banks issuing credit cards
will receive, they are afraid that out of spite Visa and MasterCard
will unilaterally cut their fees. I have news for them: Visa and
MasterCard can do that today even without the Durbin amendment. They
have the power to dictate these interchange fees to small banks and
credit unions alike. That is what is fundamentally unfair, and that is
the situation facing merchants and businesses across America today.
I hear small banks say that even though the Durbin amendment reduces
the interchange fee rates, Visa and MasterCard are threatening that if
the amendment becomes law, they are going to go ahead and reduce the
rates they set for small banks. That is certainly in their power today,
but it is certainly against the economic interests of Visa and
MasterCard.
Small banks have to understand--credit unions as well--that Visa and
MasterCard want more credit cards out there, more people using them.
Discouraging the use of credit cards is certainly not in their business
model. Visa and MasterCard only get paid if the card is actually swiped
or the interchange fee is charged. They would lose that revenue if they
cut small bank interchange fees so much so that the banks would stop
issuing credit cards.
The only reason Visa and MasterCard might decide to reduce small bank
debit interchange rates is if the big banks told Visa and MasterCard
not to let the small banks get more interchange revenue than they do.
Big banks hate the thought of small banks getting higher interchange
rates because the small banks could use that money to eat into the big
banks' share of the debit card issuer market.
Many have long suspected that Visa and MasterCard operate primarily
to serve the big banks. We are certainly going to find out.
I say to those who have come to lobby me for over 25 years from the
credit union industry, I am really troubled by the pattern of conduct I
have seen on this legislation. I saw it before when we were dealing
with the issues of bankruptcy and foreclosure, when we specifically
exempted the credit unions, and yet they refused to break from the
biggest bankers--the American Bankers Association--in their position on
this issue. We are seeing it again today. We specifically exempt all
but three credit unions, and the credit unions are doing the bidding of
the big banks and the credit card companies.
I think of the origin of credit unions, which came to be when people
across
[[Page S4841]]
America decided they wanted to have a fighting chance against banks,
that they would come together, pool their savings, and loan to one
another with reasonable interest rates. We rewarded this credit union
model by saying we would not consider them for-profit banks. We would
exempt them from certain Federal taxation because they were different--
different in their goals, different in their principles, different in
their business models.
But the more I watch them on issue after issue, there is not a dime's
worth of difference between the big banks and the credit unions when it
comes down to the really tough issues. As soon as the big banks snap,
the Credit Union Association jumps. That is what is going on here. It
is unfair to those who honor the credit union movement and what it
stands for, and it is unfair that their leaders do not have at least
the vision to understand that this kind of approach is at the long-term
expense of the reputation of a fine association which has served so
many millions of Americans, including my family, for a generation.
The banks also argue that because my amendment requires debit fees to
be reasonable and proportional to the cost of processing a transaction,
they will not be able to cover the possible risk of fraud. That is a
pretty bold argument for them to make.
Visa, MasterCard, and the banks for years have been urging consumers
to use payment methods that run higher fraud rates. On April 21, an
article ran in the American Banker entitled ``Counterintuitive Pitch
for Higher-Fee Debit Category.'' The article discusses how JPMorgan
Chase, one of the Nation's largest debit card issuers, has urged all
its customers to sign for its debit transactions rather than enter a
PIN number. As the article points out, entering a PIN number greatly
reduces the risk of fraud. The reason JPMorgan Chase urged its
cardholders to use signature debit cards is the interchange fees for
signature cards are higher. They make more money when you sign than
when you use a PIN number. They are willing to absorb the possibility
of fraud in a signature rather than in a PIN number, which is more
secure. The banks do not appear to be nearly as concerned about lower
fraud as they are about higher fees.
Visa, MasterCard, and the banks have also been blocking the
introduction of fraud-proof card technology in the United States, again
because they want to keep interchange rates high. For example, many
countries have chip and PIN cards where a card has a microchip that can
only be activated by the use of a PIN number. The banks and card
companies in this country have stifled that technology.
When debit fraud does happen today, the big banks usually try to
charge back the fraud loss to the merchants on the grounds that the
merchants somehow violated Visa's and MasterCard's operating rules.
As long as big banks are guaranteed the same interchange revenue no
matter how much or how little fraud they have, the banks have no
incentive to keep fraud costs low. My amendment will give big banks a
real incentive to reduce fraud.
Finally, I hear the banks argue that by reducing debit interchange
fees, my amendment would force the banks and card companies to raise
fees on customers. I try not to laugh when I hear this one because when
were the banks and card companies not raising fees on their customers?
Didn't we just see them fall all over themselves to gouge cardholders
before last year's Credit CARD Act took effect? I cannot tell you how
many letters I received in the mail during the grace period before the
law went into effect announcing higher interest rates on the credit
cards my family uses. It is not as if banks and card companies were
reducing fees to cardholders as interchange rates were being hiked over
the last few years. Rather, they ratcheted up fees on both the
cardholder side and on the merchant side. They try to take advantage of
both sides whenever they can.
We need to ensure that this system works fairly both for consumers
and for small businesses. And last year's Credit CARD Act and my
amendment will work together to do so.
In conclusion, I call on my colleagues to stand up for the merchants
and small businesses across America, to push this amendment across the
finish line in the conference committee on Wall Street reform. This
amendment represents one of the biggest wins for small businesses and
consumers in years. It will help small businesses grow and create more
jobs. Do not let the Wall Street lobbyists and the friends of the
credit unions who are working for them fool you. This is all about big
bank profits. Do not let them kill this amendment. Do not let them
bring down this broad, bipartisan effort to give small businesses a
fighting chance against Visa and MasterCard.
Mr. President, I yield the floor. I see my colleague from North
Dakota is with us.
The PRESIDING OFFICER. The Senator from North Dakota.
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