[Congressional Record Volume 157, Number 41 (Thursday, March 17, 2011)]
[Senate]
[Pages S1778-S1780]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
INTERCHANGE FEES
Mr. DURBIN. Mr. President, I usually do not get up in the morning and
race to read the editorial page of the Wall Street Journal. It is not
part of my morning routine. I do not agree with them on most of the
positions they have taken and I have found many times the statements
they make are sometimes grossly inaccurate. This morning was no
exception.
They printed an editorial on the issue of interchange fees on debit
cards. They had some critical things to say, which is their right, and
my responsibility as an elected official to absorb. I know folks on
Wall Street and their friends in the press are not happy with the
interchange reform which Congress passed last year. They are certainly
entitled to their opinion, but they are not entitled to their own
alternative reality. When I read this Wall Street Journal editorial
this morning, I felt as though I had entered into some fact-free
twilight zone.
Swipe fee reform is an important issue. So the people who are
following this debate understand what we are talking about; each time
you use a credit card or a debit card to pay for something--a meal at a
restaurant, groceries, pharmaceuticals, a donation to a charity, buying
gas for your car--each time you do there is a fee that is charged to
the merchant. That fee is charged by both the bank issuing the card and
the underlying credit card company. It is called an interchange fee.
And it is a fee that is imposed on businesses large and small all
across America literally without negotiation. It is a fee that is
dictated because there is little or no competition.
The Wall Street Journal probably prides itself on being the protector
or defender of the free market system. There is no free market system
when it comes to interchange fees. If you want to accept a Visa or
MasterCard from a certain bank, you will pay a certain interchange fee
every time a card is used at your establishment. What I learned in a
hearing on this subject years ago is that there is virtually no
negotiation in establishing these fees. And merchants came to me. The
first who came to me was not a major retailer but a buddy of mine in
Quincy, IL, named Rich Niemann. Rich Niemann is a very conservative man
who probably reads the Wall Street Journal every day, but he has done
quite well for himself and his family and his company by opening up
food stores all over the Midwest.
Rich is a roll-up-your-sleeves, grassroots businessman. He said to
me: Senator Durbin, these credit card companies and their banks are
killing us. The interchange fees bear no relationship to the actual
cost of the transaction.
He said: You know, if somebody pays for groceries with a check, it
clears the bank for pennies regardless of whether the check is for $10
or $100. If they use a debit card, which is a plastic check drawing
directly out of their account to pay, it ends up we pay an interchange
fee which is substantially higher; and there is nothing we can say
about it.
The Wall Street Journal, the defender of the free market system, the
defender of competition, has to acknowledge the reality that there is
no competition when it comes to these duopolies, Visa and MasterCard,
and when you consider that merchants have no voice or little voice in
establishing what their fee is going to be when it is charged.
So we came to the floor of the Senate and said we need to have
interchange fee reform. The measure passed, the amendment passed, by a
margin of 64 votes--17 Republicans, 47 Democrats--and then was accepted
in conference
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and became part of the law, the Dodd-Frank Wall Street reform.
What it said was this: The Federal Reserve would analyze the current
state of the market and establish what a reasonable and proportional
interchange fee would be, what is fair. Since there is no competition
under the current system, let's at least establish what is fair. Let's
not let Visa, MasterCard, and the banks fix prices for lack of
competition.
You know what the early analysis showed? The average interchange fee
was in the range of 40 cents per transaction. The actual cost? The
actual cost? Closer to 10 cents, maybe even less. They were charging
three to four times as much over the cost of actually clearing the
transaction to merchants and retailers across America, which, of
course, diminishes their profitability, diminishes their ability to
expand their small businesses and large alike and is passed on to the
consumer.
Now, you would think even the Wall Street Journal, this bastion of
conservatism and defender of the free market, would acknowledge the
obvious. The obvious is, small businesses and large businesses alike
are being overcharged across America by credit card companies and banks
without restraint. That is not a free market that is imposing a cost.
What is it worth in terms of interchange fees, which they refer to
kind of dismissively as small and not to be concerned about? What is it
worth to the credit card industry and the major banks in America every
month? It is worth $1.3 billion in interchange fees collected on debit
cards--$1.3 billion.
So let's do the math for a minute. It is over $15 billion a year--$15
billion a year--which the Wall Street Journal wants to protect as a
handout to the biggest banks and credit card companies in America.
Well, be my guest, Wall Street Journal, but do not stand up and say you
are defending businesses across America because businesses, large and
small, are sick and tired of the noncompetitive, opaque system that
currently exists they are paying for.
My amendment does not create price fixing. It places reasonable
limits on price fixing that is already present in the interchange
system. If you look at any bank's Web site, see if you can find how
much that bank charges merchants in interchange fees. You will not find
anything. There is no disclosure.
Why? Because for years the banks let Visa and MasterCard fix the
interchange rates that each bank receives when its card is swiped. This
means banks do not have to compete with one another on the fees they
receive from merchants. They all receive the same fees no matter how
much any particular bank actually spends to process a transaction or
prevent fraud.
The current interchange system, the one that needs to be reformed, is
a price-fixing scheme. Period. My amendment simply says if big banks
are going to let the Visa and MasterCard duopoly fix fees on their
behalf, the Federal Reserve should regulate those fees so they are
reasonable. If a bank wants to charge its own fees to reflect the cost
it bears, so be it. My amendment does not regulate that. As long as
those fees are transparent and competitive, I am fine with them. But
when the banks all get together, when they conspire to let Visa and
MasterCard fix fees for them, that is when my amendment steps in. That
is what offends the Wall Street Journal, the defender of America's free
markets.
We know big banks today receive far more in interchange than it costs
them to do debit transactions. They use this excess interchange subsidy
for things such as ads and reward programs and executive bonuses and,
certainly, for profits. That is what they do.
The effect of my amendment will be to squeeze the fat out of the
interchange system. Big banks will still be able to use interchange to
pay for reasonable processing costs, but they will not be able to use
this interchange scheme to take excess fees out of the pockets of
merchants and their customers.
Well, you might ask, is this the case in every country? The answer
is, no. In other countries that use Visa and MasterCard, something
interesting has occurred. Do you know what the interchange fee is on
debit card transactions in Canada? Zero. No fee. Do you know what it is
in Europe? It is a tiny fraction of what it is in the United States. So
for Visa and MasterCard and the banks that issue these cards to argue
that even reducing interchange fees will cripple them, will force them
to raise fees, will cancel services they already offer, is to belie the
reality that in many places in the world, unlike America, they are not
overcharging merchants. They have reasonable interchange fees; in some
places, no interchange fees.
Let's look at the Wall Street Journal's claim that because of swipe
fee reform, we ``will soon be paying for check-writing privileges.''
Well, this is an old song. We have heard it before.
It is surprising the Wall Street Journal would repeat this argument
to say that interchange reform will cause people to start paying for
their checking accounts. I would urge them to read back issues of their
own newspaper. Let's go back to the November 12, 2008, Wall Street
Journal article entitled, ``Banks Boost Customer Fees to Record
Highs.'' Well, this was long before the Durbin amendment. They were
already raising fees, and they will continue to raise fees. That is why
some of the banks enjoy huge profit margins and bonuses, dramatic
bonuses, for the executives who work there.
They might read the opening line of that article which said:
Banks are responding to the troubled economy by jacking up
fees on their checking accounts to record amounts.
I am quoting the Wall Street Journal. They were already raising fees
on customers long before this debate began. Another line in the same
article says:
The average costs of checking-account fees, including ATM
surcharges, bounced-check fees and monthly service fees, have
hit record highs.
That was 2008, long before our debate on the Senate floor. If the
Wall Street Journal's writers cannot be bothered to even read their own
newspaper, I urge them to read what the Bank of America's spokeswoman,
Anne Pace, told the Associated Press on October 19, 2010. She said:
Customers never had free checking accounts. They always
paid for it in other ways, sometimes with penalty fees.
Again, this is a spokesman for the industry being brutally honest
about free checking.
It astonishes me how many people simply repeat the banking industry's
talking points without ever doing any fact checking. Banks always say
if anybody tries to regulate them, it will lead to higher consumer fees
and checking fees; and reporters print it like it is the gospel.
Hasn't anyone ever realized that threatening higher consumer fees is
a great strategy to scare away any efforts at reform? It is a great
tactic because it is all speculation. We cannot prove or disprove for
sure what is going to happen in the future.
What we can do is look at past experience and use it as a guide. For
example, we know from the last few years that banks and credit card
companies have constantly tried to raise fees both on consumers and
merchants as high as the market would allow them to go despite the
recession. We also know from experience that competitive markets, which
the Wall Street Journal should honor before they honor these duopolies
involved in price fixing--competitive markets overseen by reasonable
regulation are the best way to keep fees and prices at an appropriate
level.
Unfortunately, we also know the current interchange system is an
unregulated, uncompetitive market. That is why we see fees that are
hidden, nonnegotiable, and many times higher than what a competitive
market would produce.
Let's talk about the Wall Street Journal's views on how swipe fee
reform will impact consumers. I do not know that the Wall Street
Journal would be viewed by many, if any, as a great proconsumer
publication. This morning they wanted to wear that mantle. They say it
is a ``hoax'' that reform is proconsumer; then, ``as usual, the little
guy is going to get trampled.''
How frequently have you turned to the Wall Street Journal to find out
who is going to stand up for the little guy in America? Almost never in
my case and, certainly, they have this wrong.
[[Page S1780]]
Some might say it is great the Wall Street Journal now appears to
care about consumers. Of course, I would feel better about it if I had
not read yesterday's editorial in the Journal. That is one where they
said they would like to see Congress kill the Consumer Financial
Protection Bureau.
This is a series. There is a recurring theme. The theme is consumers
are going to lose, and merchants are going to lose, and small business
is going to lose if this defender of the market, the Wall Street
Journal, has its way.
Here is the reality. Consumers right now are already paying for the
interchange system. In November 2009 the GAO said, under the current
system, ``merchants pass on their increasing card acceptance costs to
the customers.'' The Consumer Federation of America, which supports
reform and opposes the repeal that is now underway, does care about
consumers. That is why they exist. Here is what they said in a letter
this week:
The current interchange system is uncompetitive, non-
transparent and harmful to consumers. It is simply unjust to
require less affluent Americans who do not participate in or
benefit from the payment card or banking system to pay for
excessive debit interchange fees that are passed through to
the cost of goods and services.
That quote is from the Consumer Federation of America. U.S. PIRG,
Public Citizen, and the Hispanic Institute submitted testimony last
month where they said:
The current swipe fee market is broken and all consumers
pay more for less because of escalating swipe fees.
They also said:
Sixteen countries and the European Union regulate swipe
fees and their experience demonstrates that regulation
benefits consumers in lower fees and lower costs of goods.
Make no mistake, what is at stake here--what is at stake here with
the effort to repeal or delay the implementation of this reform on
behalf of businesses, large and small, across America--what is at stake
here is a handout to the largest banks in America and the credit card
companies of more than $15 billion a year.
A bailout was not enough for these big banks. Now they want a
handout, and the Wall Street Journal is standing by the sidelines
applauding that notion. These defenders of free enterprise cannot wait
to construct a system where the largest banks on Wall Street and the
credit card giants can take more money out of our economy from small
businesses and consumers alike. That is their idea of free enterprise;
it is not mine.
The Wall Street Journal accuses me of pushing for swipe reform as a
``sop to Wal-Mart, Home Depot and other giant retailers.''
Well, make no mistake. Every merchant, every business accepting debit
cards is going to be affected by this reform, large and small. And the
facts tell us that everyone who accepts debit cards will benefit from
swipe fee reform, not just big merchants but small businesses,
universities, health care providers, charities, government agencies, as
well as many others, convenience stores--the list goes on.
I ordered a study 2 years ago and held a hearing last year in my
appropriations subcommittee on how much the Federal Government pays in
interchange fees with our taxpayer dollars. The total was $116 million
a year. Those who are supporting the repeal or delay of this reform are
imposing additional debt on a government already deep in debt. Where
will those debts be incurred? From the biggest banks on Wall Street and
the biggest credit card companies, by and large.
I tried to reform the government interchange rate on my
appropriations bill last year but could not get it through. I will be
back.
I have been at this interchange reform effort for a number of years
now. I got into it because of a hearing held by then-Republican Senator
Arlen Specter. Before that hearing, I did not know or even understand
this issue. After it, I decided something had to be done. I would not
be doing this if it was just for the big box companies. I would not be
fighting so hard for reform if it was not good for small businesses and
certainly for consumers and the American economy.
I hope the Wall Street Journal is also aware that card companies such
as Visa charge higher interchange fees to small business than to big
businesses. How do you like that for competition? Small businesses get
it the worst under the current system. Wouldn't it be nice if the Wall
Street Journal stood for small business once in a while? Go look at
Visa's Web site, at their interchange rates for retail debit. You will
see right now the biggest retailers have to pay an interchange fee of
0.62 percent plus 13 cents a transaction, while the smallest retailers
pay 0.95 percent plus 20 cents a transaction.
Dollar for dollar, interchange reform will help small businesses more
than big ones. That is the reality of this reform.
I do not expect to ever be endorsed by the Wall Street Journal. I do
not even know if they make endorsements, and I have not even asked. But
I am going to insist they stick with the facts. I know the Wall Street
Journal is not going to stray very far from Wall Street banks, which
bear the same basic name, as well as the credit card companies that are
a duopoly in this American economy. I am going to continue this battle
for Main Street, not Wall Street.
I urge my colleagues who are being inundated--literally inundated--by
banking lobbyists right now seeking to stop this reform; that when they
go home, steer away from the big banks. Go to the small businesses that
accept credit cards and debit cards. Go to any one of them and ask them
whether they think this is an important reform for the future of their
small business, their employees, and for the local economy. I think
they are going to hear the other side of the story. Some of these small
businesses cannot afford the lobbyists who are prowling the halls of
Washington today, but they deserve our attention as much as, if not
more than, the big banks on Wall Street and the card companies.
I yield the floor and suggest the absence of a quorum.
The ACTING PRESIDENT pro tempore. The clerk will call the roll.
The legislative clerk proceeded to call the roll.
Ms. LANDRIEU. Mr. President, I ask unanimous consent that the order
for the quorum call be rescinded.
The ACTING PRESIDENT pro tempore. Without objection, it is so
ordered.
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