[Congressional Record Volume 157, Number 36 (Thursday, March 10, 2011)]
[Senate]
[Pages S1568-S1572]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
INTERCHANGE FEE REFORM
Mr. DURBIN. Mr. President, I rise to speak about the issue of
interchange fee reform. Last year, Congress enacted landmark reform of
the swipe fees that Visa and MasterCard impose on the debit card
system. An amendment I offered to Wall Street reform passed the Senate
with 64 votes--47 Democrats, 17 Republicans--and was later signed into
law. It was the first amendment out of the first 26 on that bill that
was held to a 60-vote standard. Every other amendment before was held
to a simple majority. But I was lucky enough, when I offered the
amendment, that there was an insistence that we had to reach 60 votes.
We did it, 47 Democrats and 17 Republicans. It was a great victory, and
one that came as a surprise to Wall Street, because Main Street--the
retail merchants, the restaurants, the convenience stores, and many
others--had worked hard for this amendment.
Never before had Visa and MasterCard, the duopoly of credit cards,
and their big bank allies lost a vote such as this in Congress.
Normally, the credit card companies and the big banks are used to
getting their way in this town. Visa and MasterCard have such power
that they control over 75 percent of all credit and debit card
transactions in America. Last year, $1.39 trillion was transacted on
Visa and MasterCard debit cards. According to the American Bankers
Association, the U.S. banking industry is a $13 trillion industry. That
is trillion with a ``t.''
Many Members in this body are being lobbied right now by banks and
card companies to repeal this law, to undo the interchange reform
Congress passed last year. It is one of the most active lobbying
efforts I have ever seen.
I want to explain why interchange reform is so important, not just
for the concepts of competition and transparency but also for the
people and businesses affected, for small businesses and consumers and
the American economy.
[[Page S1569]]
A little background on the debit card industry: Debit cards are
simply a way for accountholders to access funds stored in an account.
They are the electronic version of a check.
Debit cards are issued by banks, such as Bank of America, where the
account is held. The cards are also part of a card network such as Visa
or MasterCard, which set certain fees and rules about using their
cards.
The banks that issue the debit cards can make money in several ways.
They make loans based on deposits and earn interest. They charge fees
to consumers for maintaining and accessing accounts such as ATM,
monthly, overdraft, and transfer fees. They also receive interchange
fees from merchants every time one of their debit cards is used.
If you look at any bank's Web site, you can find the loan interest
rates and the account fees the bank charges customers. Banks compete
with one another for this consumer business. That competition keeps
their fees in check. It is called the free market. But ask any bank to
show you on their Web site where you can find the interchange fees that
the bank charges merchants, restaurants, universities, charities,
convenience stores, ask them what they charge as an interchange fee for
the use of their debit cards, the bank will say: Well, you will have to
call Visa or MasterCard.
Card companies such as Visa fix the interchange fee rates received by
issuing banks, the banks that have their name on the card next to the
Visa symbol. In other words, thousands of banks that compete with one
another in all other aspects of business do not compete with one
another when it comes to how much in so-called swipe fees or
interchange fees they get from merchants. The banks let Visa set the
prices for all of them.
Visa has decided that every bank that issues Visa cards will get the
same rate as every other bank, no matter how efficient a bank is, no
matter how much fraud a bank allows. Rather than a competitive system,
this is a system which subsidizes inefficiency. In fact, the only
competition in the interchange system right now is the competition
between card networks to raise interchange fees. They raise the rates
in order to get banks to join the network and issue more of their
cards.
It is easy to see why banks and card networks set up this system. It
makes the banks happy because they get billions of dollars a year in
high fees, and they don't have to worry about competition. It makes the
networks happy because they get their own network fee each time a card
is swiped, and high interchange means banks will issue more cards.
But it is unfair to those who are receiving the cards--for example,
the restaurants, the merchants, the shops, the book stores,
universities, charities, convenience stores--because they have no power
to negotiate this fee. They can't hold off and say: Wait a minute, if
you want us to take Visa at our store, we want to know how much you are
going to charge us every time a customer uses a Visa card. There is no
way to have any conversation on that. Visa establishes what the swipe
fee will be.
It is also unfair to consumers, particularly low-income consumers and
those without banking accounts, who pay billions per year in hidden
interchange fees that are passed on to them in higher prices for gas
and groceries. How about that. I had some people in my office today
talking about the price of gasoline. They said: Understand, every time
a customer uses a Visa or a MasterCard, they are taking a percentage of
that cost on the gallon of gasoline. Their percentage keeps going up,
and in order to have a profit, to keep the lights on, we have to keep
raising the price of gasoline to keep up with the credit card
companies, let alone the national oil companies.
The Federal Reserve estimated that in 2009, about $16.2 billion was
charged in debit interchange fees, a massive amount of money that is
being paid to the banks by merchants and their customers, about $1.3
billion a month. I will get back to that number in a moment. It didn't
used to be that way in America. It isn't that way in many other
countries that use Visa and MasterCard.
Back when the debit card system was started several decades ago,
debit fees were minimal. It wasn't until Visa entered the market in the
1990s that we started seeing debit card interchange fees that looked
like credit card interchange fees.
They are two different worlds. When I use a credit card, ultimately,
the bank and credit card company have to collect from me. If I dodge
them or don't pay, there is a loss. A debit card comes directly out of
my account. There is no question whether the money is there. It is
already there.
There is an excellent New York Times article by Andrew Martin from
last year titled ``How Visa, Using Card Fees, Dominates a Market.''
I ask unanimous consent to have that article printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
[From the New York Times, Jan. 5, 2010]
The Card Game--How Visa, Using Card Fees, Dominates a Market
(By Andrew Martin)
Every day, millions of Americans stand at store checkout
counters and make a seemingly random decision: after swiping
their debit card, they choose whether to punch in a code, or
to sign their name.
It is a pointless distinction to most consumers, since the
price is the same either way. But behind the scenes, billions
of dollars are at stake.
When you sign a debit card receipt at a large retailer, the
store pays your bank an average of 75 cents for every $100
spent, more than twice as much as when you punch in a four-
digit code.
The difference is so large that Costco will not allow you
to sign for your debit purchase in its checkout lines. Wal-
Mart and Home Depot steer customers to use a PIN, the debit
card norm outside the United States.
Despite all this, signature debit cards dominate debit use
in this country, accounting for 61 percent of all such
transactions, even though PIN debit cards are less expensive
and less vulnerable to fraud.
How this came to be is largely a result of a successful if
controversial strategy hatched decades ago by Visa, the
dominant payment network for credit and debit cards. It is an
approach that has benefited Visa and the nation's banks at
the expense of merchants and, some argue, consumers.
Competition, of course, usually forces prices lower. But
for payment networks like Visa and MasterCard, competition in
the card business is more about winning over banks that
actually issue the cards than consumers who use them. Visa
and MasterCard set the fees that merchants must pay the
cardholder's bank. And higher fees mean higher profits for
banks, even if it means that merchants shift the cost to
consumers.
Seizing on this odd twist, Visa enticed banks to embrace
signature debit--the higher-priced method of handling debit
cards--and turned over the fees to banks as an incentive to
issue more Visa cards. At least initially, MasterCard and
other rivals promoted PIN debit instead.
As debit cards became the preferred plastic in American
wallets, Visa has turned its attention to PIN debit too and
increased its market share even more. And it has succeeded--
not by lowering the fees that merchants pay, but often by
pushing them up, making its bank customers happier.
In an effort to catch up, MasterCard and other rivals
eventually raised fees on debit cards too, sometimes higher
than Visa, to try to woo bank customers back.
``What we witnessed was truly a perverse form of
competition,'' said Ronald Congemi, the former chief
executive of Star Systems, one of the regional PIN-based
networks that has struggled to compete with Visa. ``They
competed on the basis of raising prices. What other industry
do you know that gets away with that?''
Visa has managed to dominate the debit landscape despite
more than a decade of litigation and antitrust investigations
into high fees and anticompetitive behavior, including a
settlement in 2003 in which Visa paid $2 billion that some
predicted would inject more competition into the debit
industry.
Yet today, Visa has a commanding lead in signature debit in
the United States, with a 73 percent share. Its share of the
domestic PIN debit market is smaller but growing, at 42
percent, making Visa the biggest PIN network, according to
The Nilson Report, an industry newsletter.
The Risk of Refusing
Critics complain that Visa does not fight fair, and that it
used its market power to force merchants to accept higher
costs for debit cards. Merchants say they cannot refuse Visa
cards because it would result in lower sales.
``A dollar is no longer a dollar in this country,'' said
Mallory Duncan, senior vice president of the National Retail
Federation, a trade association. ``It's a Visa dollar. It's
only worth 99 cents because they take a piece of every one.''
Visa officials say its critics are griping about debit
products that have transformed the nation's payment system,
adding convenience for consumers and higher sales for
merchants, while cutting the hassle and expense of dealing
with cash and checks. In recent years, New York cabbies and
McDonald's restaurants are among those reporting higher sales
as a result of accepting plastic.
[[Page S1570]]
``At times we have a perspective problem,'' said William M.
Sheedy, Visa's president for the Americas. ``Debit has become
so mainstream, some of the people who have benefited have
lost sight of what their business model was, what their cost
structure was.''
Visa officials said the costs of debit for merchants had
not gone down because the cards now provided greater value
than they did five or 10 years ago. The costs must not be too
onerous, they say, because merchant acceptance has doubled in
the last decade.
The fees are ``not a cost-based calculation, but a value-
based calculation,'' said Elizabeth Buse, Visa's global head
of product.
As for Visa's market share, company officials maintain that
it is rather small when considered within the larger context
of all payments, where, for now at least, cash remains king.
While Visa may be among the best-known brands in the world,
how it operates is a mystery to many consumers.
Visa does not distribute credit or debit cards, nor does it
provide credit so consumers can buy flat-screen televisions
or a Starbucks latte. Those tasks are left to the banks,
which owned Visa until it went public in 2008.
Instead, Visa provides an electronic network that acts like
a tollbooth, processing the transaction between merchants and
banks and collecting a fee that averages 5 or 6 cents every
time. For the financial year ended in June, Visa handled 40
billion transactions. Banks that issue Visa cards also pay a
separate licensing fee, based on payment volume. MasterCard,
which is roughly half the size of Visa, uses a similar model.
``It's a penny here or there,'' said Moshe Katri, an
analyst who tracks the payments industry for Cowen and
Company. ``But when you have a billion transactions or more,
it adds up.''
With debit transactions forecast to overtake cash purchases
by 2012, the model has investors swooning: Visa's stock
traded at $88.14 on Monday, near a 52-week high, while shares
of MasterCard, at $256.84 each, have soared by more than 450
percent since the company went public in 2006.
While there is little controversy about the fees that Visa
collects, some merchants are infuriated by a separate, larger
fee, called interchange, that Visa makes them pay each time a
debit or credit card is swiped. The fees, roughly 1 to 3
percent of each purchase, are forwarded to the cardholder's
bank to cover costs and promote the issuance of more Visa
cards.
The banks have used interchange fees as a growing profit
center and to pay for cardholder perks like rewards programs.
Interchange revenue has increased to $45 billion today, from
$20 billion in 2002, driven in part by the surge in debit
card use.
Some merchants say there should be no interchange fees on
debit purchases, because the money comes directly out of a
checking account and does not include the risks and losses
associated with credit cards. Regardless, merchants say they
inevitably pass on that cost to consumers; the National
Retail Federation says the interchange fees cost households
an average of $427 in 2008.
While the cost per transaction may seem small, at Best Buy,
the biggest stand-alone electronics chain, ``these
skyrocketing fees add up to hundreds of millions of dollars
every year,'' said Dee O'Malley, director of financial
services. ``Every additional dollar we are forced to pay
credit card companies is another dollar we can't use to hire
employees, or pass along to our customers in the form of
savings.''
Weighing Rules on Merchants
The Justice Department is investigating if rules imposed by
payment networks, including Visa, on merchants regarding
``various payment forms'' are anticompetitive, a spokeswoman
said. Several bills have been introduced in Congress seeking
to give merchants more ability to negotiate interchange,
which is largely unregulated.
While interchange remains legal despite repeated
challenges, a group of merchants is pursuing yet another
class-action suit, this time in federal court in Brooklyn,
against Visa and MasterCard that seeks to upend the system
for setting fees.
``Visa and MasterCard have morphed into a giant cookie jar
for banks at the expense of consumers,'' said Mitch
Goldstone, a plaintiff in the case.
Fees were not an issue when debit cards first gained
traction in the 1980s. The small networks that operated
automated teller machines, like STAR, Pulse, MAC and NYCE,
issued debit cards that required a PIN. MasterCard had its
own PIN debit network, called Maestro.
Merchants were not charged a fee for accepting PIN debit
cards, and sometimes they even got a small payment because it
saved banks the cost of processing a paper check.
That changed after Visa entered the debit market. In the
1990s, Visa promoted a debit card that let consumers access
their checking account on the same network that processed its
credit cards, which required a signature.
To persuade the banks to issue more of its debit cards,
Visa charged merchants for these transactions and passed the
money to the issuing banks. By 1999, Visa was setting fees of
$1.35 on a $100 purchase, while Maestro and other regional
PIN networks charged less than a dime, Federal Reserve data
shows. Visa says the fee was justified because signature
debit was so much more useful than PIN debit; at the time,
roughly 15 percent of merchants had keypads for entering a
PIN.
Merchants said they had no choice but to continue taking
the debit cards, despite the higher fees; because Visa's
rules required them to honor its debit cards if they chose to
accept Visa's credit cards.
A Seven-Year Battle
Wal-Mart, Circuit City, Sears and a number of major
merchants eventually sued. After seven years of litigation,
Visa and MasterCard agreed to end the ``honor all cards''
rule between credit and debit and to pay the retailers a
settlement of around $3 billion, one of the largest in
American corporate history. Visa paid $2 billion, and
MasterCard the remainder.
Since then, only a handful of retailers have stopped
accepting Visa debit cards, an indication that the crux of
the lawsuit was ``much ado about nothing,'' Mr. Sheedy says.
And while some merchants said they thought the lawsuit
would pave the way to a new era of competition, a curious
thing happened instead: while Visa temporarily lowered its
fees for signature debit, it raised the price on PIN debit
transactions and passed the funds on to card-issuing banks,
and its competitors soon followed.
The current class-action lawsuit joined by Mr. Goldstone
contends that Visa's PIN debit network, called Interlink, is
offering banks higher fees as an incentive to issue debit
cards that are exclusively routed over this network.
Interlink, which has raised its PIN debit fees for small
merchants to 90 cents for each $l00 transaction, from 20
cents in 2002, is often the most expensive, especially for
small merchants, Fed data shows.
One large retailer, who requested anonymity to preserve its
relationship with Visa, provided data that showed Interlink's
share of PIN purchases rose to 47 percent in 2009, from 20
percent in 2002, even as its fees steadily increased ahead of
most other networks--to 49 cents per $100 transaction in
2009, from 38 cents in 2006.
Visa officials say its PIN debit network is taking off
despite rising costs because it offers merchants, banks and
consumers a level of efficiency and security that regional
networks cannot match. ``We are motivated as a company to try
to drive value to each one of those participants so that they
accept the card, issue more cards, use the card,'' Mr. Sheedy
said.
At checkout counters, meanwhile, consumers are quietly
tugged in one direction or the other.
Safewasy, 7-Eleven and CVS drugstores automatically prompt
consumers to do a less costly PIN debit transaction. The
banks, however, still steer consumers toward the more
expensive form of signature debit. Wells Fargo and Chase are
among those that offer bonus points only on debit purchases
completed with a signature.
Visa says it does not care how consumers use their debit
card, as long as it is a Visa. But for now at least, the
company says the only way to ensure that a purchase is routed
over the Visa network is to sign.
``When you use your Visa card, you have a chance to win a
trip to the Olympic Winter Games,'' a new Visa commercial
promises.
The commercial does not explain the rules, but the fine
print on Visa's Web site does: nearly all Visa purchases are
eligible--as long as the cardholder does not enter a PIN.
Mr. DURBIN. I urge my colleagues to read it. It shows how Visa
leveraged its dominance in the credit card industry to enter into and
dominate the debit card industry. Visa then changed the debit
interchange fee system so it looked like the credit card fee system.
The result: the United States has the highest interchange fees in the
world.
We also have some of the worst fraud prevention technology in the
world. This is because Visa gives banks higher interchange rates for
so-called signature debit transactions instead of PIN debit
transactions. So the banks tell their customers to pay with signature
debit, even though far less fraud occurs with the use of PIN numbers.
It doesn't have to be this way. Many countries such as Canada have
thriving debit card systems with zero interchange fees. Canada has low
fraud and wide consumer debit usage. Other places such as the European
Union carefully regulate interchange rates to keep them to a reasonable
level. But in this country, we have let dominant card networks--and
they are a powerful bunch--take over our debit card system. They are
driving that system on an unsustainable course.
I have worked for years to reform interchange fees and to bring
transparency, competition, and choice to the credit card and debit card
industry. I first introduced a bill on this in 2008. In 2009, I joined
with Senator Kit Bond of Missouri to file a modest floor amendment to
the Credit CARD Act. The amendment simply said interchange fees should
be reported to the Federal Reserve and that Visa and MasterCard should
not be allowed to stop merchants from offering discounts for debit
cards against credit cards. The card companies and bank industry hated
that idea like the devil hates
[[Page S1571]]
holy water. They did everything they could to kill the amendment. They
used their standard talking points, saying this amendment would hurt
consumers, small banks, credit unions, the economy, everything one
could think of. The amendment never reached a vote. Instead, in 2009,
the banks and card companies said they would support a study. We love
to study things in Washington. So Congress delayed real reform and
said: Let's get on with the study.
Last year, I said: Enough is enough. We can't continue to let Visa,
MasterCard, and the big banks use price-setting schemes to turn our
debit card system into their own large piggy bank at the expense of
merchants and consumers. The amendment I offered last year said: If
banks are going to let a card network set interchange rates for them,
those rates must be reasonable and proportional to the cost of
processing a debit transaction over that network's wires.
Why would we bring the Federal Reserve in to establish a reasonable
and proportional interest change fee? Because there is no competition
in this market. Visa and MasterCard, recently under investigation by
the Department of Justice for their practices, establish what these
interchange fees are going to be. They impose them on merchants who
many times are told late in the game how much the fee is. They don't
bargain. Merchants can't shop around. There is no competition when it
comes to the establishment of interchange fees.
The amendment will end this inefficient subsidy that Visa and
MasterCard have created for banks, and it will incentivize banks to
operate their card systems efficiently. The amendment directs the Fed
to issue regulations to implement this reasonable and proportional
standard. The Fed issued draft regulations in December and is now
working on final regulations to be completed in April and take effect
in July.
Do my colleagues know what they found in their initial cut at this?
The average interchange fee is in the range of 40 cents, and the
average cost to use a debit card is about 10 cents. Think of the
overcharge that is going on with every single transaction. The next
time you are standing in the airport and somebody hands a debit card to
the cashier to pay for a pack of gum, think about that retailer just
having lost money. The only ones who made money in the transaction were
Visa, MasterCard and the issuing bank.
Last year, when I was drafting this amendment, I knew we had to be
careful about the way the reform would affect small banks and credit
unions that currently benefit from the rates Visa and MasterCard set. I
didn't want to drive small issuers out of the debit card market. So my
amendment specifically exempted them from regulation. That means that
now, just like before, networks will compete by raising interchange
rates to win the business of those small, unregulated issuers.
I know the small banks and credit unions are also lobbying on the
Hill, saying that interchange reform will hurt them. For years, they
have been making this argument against any type of reform. I have been
on the Hill for a while, in the House and in the Senate.
I used to really believe there was a qualitative--not just
quantitative but a qualitative--difference between community banks and
credit unions and the big boys, the Wall Street banks. Over the years,
I am sorry to say when it comes to these issues, they are the same. It
is just a quantitative difference. Credit unions and community banks
are smaller, but in terms of the way they look at issues, there is not
a dime's worth of difference.
When it comes to this issue, there is an interesting phenomenon at
work. Visa and MasterCard do not dare raise their head on Capitol Hill.
If there are two more unpopular companies with American consumers, it
is hard to think of what they might be. Maybe today it is oil
companies. But it is a close second with credit card companies and the
way they treat people. So they do not come in and lobby.
Well, how about the Wall Street banks? Do you think they are going to
show up here and say: You cannot regulate these interchange fees? Two-
thirds of the debit cards come from the biggest banks out of Wall
Street, not the community banks and credit unions. So the big money in
this whole transaction is on Wall Street. But you do not hear from the
Wall Street banks. Why? Because they are not going to win any
popularity contests either.
It was not that long ago we were shoveling billions of taxpayer
dollars at these banks to keep the lights on after they made some
pretty stupid investment decisions that drove our economy into the
ditch. So they cannot lobby, the big banks, with the big money involved
in this issue. The credit card companies cannot lobby because they have
no popularity with the American consumer. So what do they do? They have
some beards, and the beards in these circumstances are the credit
unions and the community banks. Those specifically exempted are now
coming to Congress, coming to Capitol Hill, saying this could hurt us
in the future.
We drew a line and said if the asset value of the financial
institution is below $10 billion--$10 billion--they are not affected by
this law. There are, if I recall, only three credit unions in America
with assets over $10 billion. The vast majority, the overwhelming
majority, of credit unions in this country do not have anywhere near
that kind of asset value. The same thing is true with community banks.
So Wall Street banks and credit card companies have found their great
agents. Their agents are the credit unions, community banks, presenting
their case to the Members of Congress as if they are directly regulated
when they are specifically exempted from this.
I know the small banks and the credit unions are working the Hill.
For years, they have been using these arguments against any type of
reform. When we tried to get bankruptcy reform to deal with
foreclosures a few years back--and I honestly think it could have had a
dramatically positive impact to slow down foreclosures in this Nation--
we specifically exempted credit unions and community banks, and they
still lobbied against it. They are in concert when it comes to issues
with the biggest banks in America. I do not understand it. It is a
dramatic departure from where they have been historically.
Independent analysts agree that the reform Congress passed last year
will give small banks actual competitive advantages over big banks. I
ask unanimous consent to have printed in the Record a recent op-ed by
Andrew Kahr in the American Banker newspaper entitled ``Never Mind the
Lobbyists, Durbin Amendment Helps Small Banks.''
There being no objection, the material was ordered to be printed in
the Record, as follows:
[From American Banker--BankThink, Mar. 3, 2011]
Never Mind the Lobbyists, Durbin Amendment Helps Small Banks
The Durbin Amendment in Dodd-Frank lowers the interchange
paid to large banks on debit card purchase transactions, and
hence takes money away from these banks to give it to
merchants, almost dollar for dollar. When passed, this
provision was politically popular. It was a time for bank-
bashing.
Now this component of Dodd-Frank is much less popular.
Maybe legislators have noticed that even if Wal-Mart passed
through every last penny of the 0.7% of debit card sales it's
apt to save to customers in the form of lower prices, the
consumer benefit is likely to be invisible to voters. In any
event, the banks have made themselves highly audible to
voters in shrill but absurd threats to cap debit card
purchases at $50 and the like. Another form of lobbying.
One of the arguments made against the Durbin restriction on
interchange is that it will hurt community banks.
Poppycock.
Since Durbin explicitly excludes banks with assets under
$10 billion from the restriction on interchange, it takes a
hyperactive imagination to see how these banks could be hurt
by it. Lobbyists have the requisite inventiveness.
If large banks get 75% less interchange than they do now
and small banks continue to get today's interchange rates,
then obviously this confers a substantial competitive
advantage on the small banks. They can impose lower fees, pay
more interest, and give greater rewards to depositors.
Anything that reduces revenue for big banks but not for small
ones should help the latter compete more effectively against
the former.
In opposition to common sense, bank lobbyists have put
forward some very far-fetched arguments about how, in some
upside-down world, small banks are still going to be losers
rather than winners from Durbin.
One argument is that the clearing networks, of which there
are only four that
[[Page S1572]]
matter, will not support the ``two-tier'' interchange system
envisaged by Durbin. Ridiculous. Visa is the largest of the
networks. It's already announced that it will implement
Durbin. (Maybe this is an object lesson as to why Visa
remains No. 1.)
For the small banks, MasterCard is the only other
significant player. If MasterCard finds it politic not to add
one more wrinkle to a skein of interchange levels that is
already of Byzantine complexity, then let the small banks
gravitate to Visa in order to benefit from Durbin.
A second argument of the big-bank lobbyists is that
merchants will reject the debit cards of small banks if these
carry a 1% interchange cost, versus 0.3% for the large banks.
Really? Then why don't these merchants reject all credit
cards, with interchange of 2% or more, if the customer could
instead use a debit card? When is the last time a merchant
politely asked you whether you could pay with a debit card
instead of a credit card?
The reason merchants don't do this, apart from association
rules that purport to prohibit it, is that the retailer's top
priority is sales, not interchange. Selective ``suppression''
of cards by merchants has occurred with extreme rarity. One
instance took place long ago when merchants in Boston
revolted against higher interchange rates from American
Express. This can't happen now. Are cashiers in stores going
to look at a list of small banks in order to discriminate
against their cards--and then have customers walk out and
leave their would-be purchases at the cash register? The
fraction of customers who would be persuaded to change banks
or carry two debit cards is infinitesimal.
The notion that merchants will give discounts on big-bank
debit cards but not small-bank debit cards is equally silly.
Since when did they offer an incentive to use debit rather
than credit cards? If they are not motivated to do so by 2.3%
versus 1% interchange, then why should they be motivated by
1% versus 0.3%?
Finally, we are warned that a second, utterly unrelated
provision of Durbin that mandates competitive network routing
will somehow injure small banks. Impossible. It is
predominantly the biggest banks that have negotiated
exclusive or volume-dependent routing deals with Visa or
others. This too gives them an advantage over small banks
that Durbin will undermine or erase--to the benefit of the
small banks.
The charm of the Durbin debate on interchange is that it
largely amounts to ``Who's going to get the money, big banks
or merchants?'' (In other words, ``Which do you like less,
Congressman, big banks, or big merchants?'')
Outside the realms of taxation and appropriations, it is
unusual to see such a choice so sharply focused for our
representatives in Washington.
Ben Bernanke and other regulators would like to see less
pressure on big-bank earnings and capital. That's
understandable. Maybe it's even a winning--though illogical--
argument.
But let's not talk nonsense about bogeyman danger to
community banks.
Mr. DURBIN. Now, Kahr is no mouthpiece for merchants. He is a
financial consultant who is recognized as the creator of many aspects
of the modern card industry. But he says what I have been saying for
months--that the arguments small banks have been making against my
amendment defy economic logic and common sense.
I also believe interchange reform is essential for consumers. Banks
will tell you consumers will be hurt by reform because banks will have
to raise consumer fees to make up for lost revenue.
First, when did we start listening to banks and credit card companies
to tell us what is good for consumers? Second, read the headlines for
the past few years and you will see that banks were already raising
consumer fees to record highs in 2008, 2009, and 2010--before my
amendment became law. They are always looking for ways to raise fees on
consumers as high as the market will allow.
Third, consumers are already paying for the current interchange
system. Soaring interchange fees are passed on to consumers in the form
of higher prices for gasoline and groceries. And the current system
particularly hurts unbanked consumers who pay with cash.
I believe consumers benefit from transparency, competition, and
choice. The current interchange system has been designed specifically
to avoid these features. That is why consumer groups agree with me and
support the interchange reform which we have on the books.
I know the financial industry lobbyists are out there now storming
the Halls of Congress. They are saying: Let's delay the Fed's
interchange rulemaking for a year or two. Let's study this issue some
more. Study, study, study; this is one great study hall, this U.S.
Senate. But there comes a point when we need to act, and we are
prepared to act now with the Federal Reserve in April and in July.
There is no need to delay these rules. Read the comments I submitted
to the Fed about their draft rulemaking. You will see how the new law
provides reasonable timeframes for implementing every part of the Fed's
rules.
I saw this call for delay and study before, on the Credit CARD Act
back in 2009, and it does not surprise me we are hearing it again.
If my colleagues remember nothing else, they should remember this:
Delaying interchange reform will have significant consequences to
employers, small businesses, and consumers all across America. Not only
will businesses, universities, government agencies, and charities keep
paying the current $1.3 billion per month in debit interchange fees,
the fees will keep going up further. There will be nothing to constrain
Visa and MasterCard from setting higher and higher fees. There is no
competition in this industry.
Some of my colleagues say they are concerned about small banks and
consumers. So am I. That is why I drafted the amendment to exempt them.
Independent analysts and consumer groups agree that the reform we
passed protects small banks and consumers.
I say to my colleagues, do not tell me you are worried about small
banks and consumers and then push for a delay that will serve to
provide $1 billion a month in more fees primarily to the largest banks
in America.
A delay in this implementation would give Visa and MasterCard and the
big banks a multibillion-dollar handout--have we heard this song
before?--while leaving merchants and consumers worse off than they
already are. I am not going to sit by and let the big banks and card
companies get away with trying to kill this reform. They have been
bailed out enough already.
I urge my colleagues in Congress: Do not bail out the big banks on
Wall Street another time. Once in a political lifetime is enough for
most of us.
I am standing with the consumers and merchants on this issue. I hope
my colleagues will join me and find it is a good place to stand.
I yield the floor.
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