[Congressional Record Volume 157, Number 60 (Thursday, May 5, 2011)]
[Senate]
[Pages S2715-S2720]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                            INTERCHANGE FEES

  Mr. DURBIN. Mr. President, there are many issues which come before 
the Senate, and some are simple and some are complex. The issue I am 
going to speak to today is one which you are personally aware of, Mr. 
President, as the Senator from West Virginia, and one that more and 
more Members are becoming aware of. It is the question of interchange 
fees or swipe fees.
  For those who do not follow this closely, every time we use a credit 
card or a debit card in the United States of America, the retailer or 
merchant we do business with pays a fee to the bank that issues the 
card. The fee is established by the major credit card networks, Visa 
and MasterCard. They tell the banks how much they will receive each 
time a customer uses these cards.
  What it comes down to is the fee that is being charged, the debit 
card fee, has become a subject of controversy. Let's go back in history 
a little bit. I can still remember when people used checks, and some 
still do but not as frequently. Now we use the plastic form of a 
checking account. Instead of writing out a check and pushing it through 
the banking system, and for a few cents watching it be processed, we 
use a debit card. A debit card draws money directly out of our checking 
accounts to the merchant we are doing business with.
  So the debit card has, in fact, by a large measure, replaced checks--
and in many instances replaced cash--as more and more people are using 
plastic for transactions. So I started hearing from merchants and 
retailers all around the United States about the fee that was being 
charged for debit card transactions.
  Now, debit card transactions are different from credit card 
transactions in this respect. When I use my credit card, I am going to 
be billed each month for what I put on my credit card. There is a 
collection issue: Will Durbin actually make his monthly payment? Will 
he make it on time? Is he able to make the payment? And there is a 
question about whether this is going to be processed.
  So there is, I guess, an uncertainty involved in credit card 
transactions and much less so when it comes to debit card transactions 
because that money is coming directly out of our checking accounts to 
the merchant. So in terms of risk, there is greater risk with a credit 
card than for a debit card. Nevertheless, over the years what we have 
seen is the swipe fee, or fee charged to a merchant for the use of a 
debit card, keeps going up, up, and up.
  People would say: Well, why don't the merchants and retailers bargain 
with Visa, MasterCard, and the banks to make sure they do not have to 
pay an increasingly large fee every time a person uses a debit card?
  The answer is they have no power to bargain at all. Not at all. So 
the retailer, the merchant, ends up accepting the debit card, swiping 
the debit card, paying for the transaction, and then paying a fee, to 
the point where one would ask: Well, how much of a fee is it?
  The average debit card fee, found by the recent study of the Federal 
Reserve, is about 40 cents a transaction. Now, 40 cents may not sound 
like much if someone is buying a television--of course, though, it is 
going to be a percentage fee--but think about 40 cents if a person 
standing in front of you in line at the airport is buying a package of 
bubble gum. That 40 cents is all the profit that retailer could ever 
expect, and it is going right out the window. In fact, they are losing 
money on the transaction because of the debit card.
  So for years retailers and merchants, restaurants, convenience 
stores, hotels, charities, universities, went to Visa and MasterCard 
and said: You cannot keep just raising this fee. It is not fair to us. 
You are not justifying it in terms of the costs of doing business, and 
we are paying more and more out of each transaction, even though the 
cost has not gone up.
  Basically, Visa and MasterCard told them: Go take a hike. We are 
going to charge what we want to charge. Take

[[Page S2716]]

it or leave it, buddy. If you do not want to take plastic, that is your 
business. Try to do business without it. You cannot.
  So retailers and merchants were on the losing end of this 
conversation. So they came to me and said: Is there a way to do a study 
on this issue and determine what is fair? So a few years ago I joined 
with Senator Bond of Missouri, and the two of us, on the credit card 
reform bill, asked for a public Fed study on fee and cost information. 
Well, it turned out the banking industry did not want any study at all. 
They killed our amendment for a Fed study and told people--all the 
people in the Senate, Democrats and Republicans--vote against even a 
study of the swipe fee, the debit card interchange fee.
  So we ended up empty handed. The day came last year when we revisited 
the issue. This time I came to the floor with an amendment and said: 
Here is what I would like to do. I would like to give to the Federal 
Reserve the power to promulgate a rule which says the fee charged for 
the use of a debit card is going to be reasonable and proportional to 
the costs incurred by the bank in processing this transaction. We are 
going to put in a factor for fraud. If there is something they need to 
add to take care of fraud, add it in. We went a step further. We said 
this is not going to apply to every bank and credit union that issues a 
debit card. We are going to exempt the overwhelming majority of 
community banks and credit unions across America.
  There are about 15,000 community banks and credit unions across the 
United States---15,000. So we said: If your bank or credit union has a 
valuation of less than $10 billion, you are not covered by this 
reasonable and proportional law. You are exempt. At the end of the day, 
it meant that about 100 banks across America were subject to this new 
law and three credit unions. All the rest are exempt.
  So you say: Well, Durbin, if you exempted all of these banks and 
credit unions, almost 15,000 of them, and you only affected about 100 
of them, how can this have any impact? Well, it turns out, of the 
largest banks in America, three of the big ones--that would be Chase, 
Wells Fargo, and Bank of America--really comprise nearly half of all 
the debit card transactions in the country. Some say even more, 60 
percent or even more. So by just making this a law that applies to the 
largest banks, we are affecting the majority of debit card 
transactions, and we are establishing a reasonable and proportional fee 
for what the transaction is.
  So the retailer and merchant, the person running the mom-and-pop 
store or the person running a big box store is going to get fair 
treatment in terms of how much is charged.
  So you say to yourself: Well, how much are they charging now? The 
Federal Reserve estimates they are charging about 40 cents a 
transaction, and the actual cost to the bank and the credit card 
company is about 10 cents. They are charging four times as much as they 
should on each transaction.
  How much money is it worth to the banks? The estimates range from 
$1.3 to $1.7 billion a month--a month. Now, these banks, the big banks 
that I am addressing with this law, they are not having little 
collections outside the bank to keep themselves in business. They are 
bringing in quite a bit of money. They are very profitable, and to say 
that they should have a reasonable charge for retailers and merchants 
across America, small businesses and large businesses alike, I do not 
think is unreasonable. Remember, we exempted the community banks. We 
exempted the credit unions. It is only the big ones that are going to 
be affected by this.
  Well, one would think I had done the worst thing in the world to 
these banks and credit card companies. They have unleashed, with the 
greatest fury they can possibly put together on Wall Street, this 
attack against the Durbin amendment. They are sending out letters--
Chase is--to all of the people who have debit card accounts and credit 
card accounts saying if this Durbin amendment goes through, we are 
going to charge extra fees here and extra fees there.
  Well, at the end of the day, that is the threat that we always hear 
from them. The fact is, since they are virtual monopolies in their 
business, they are increasing their fee charges regularly. People 
across America know it. Every time we put in a reform, they race to 
raise their interest rates and race to raise their penalties. They give 
these ``free'' checking accounts loaded with penalties if you stumble 
and do not pay on the exact day or whatever it happens to be.
  So it has become quite a battle. It is a battle between Visa, 
MasterCard, and the biggest banks in America versus the retailers and 
merchants of America. They are both engaged. Now, the retailers and 
merchants cannot hold a candle to the big banks and credit card 
companies when it comes to their investment in this fight. But they are 
trying valiantly, and we are organizing small businesses across the 
United States--in Illinois, West Virginia, all over the place--to step 
up and say: Come on. This is an important part of business.
  Now, I ran into one of my colleagues on the Senate floor, and she 
said: What I am worried about is even if you reduce the fee charged to 
the retailer for using the debit card, how is that going to help the 
customer? How is that going to translate into anything more than 
profits for the business?
  Well, Mr. President, in your family background, you have been 
involved in business. If you have a competitor across the street, 
whether it is a gas station, a drug store, a grocery store, a 
restaurant, you know your price competition is an important part of 
whether a person chooses your store over the other store. So when you 
give the owner of the store a break on the fee that is being charged by 
the credit card companies and banks, then you give them an opportunity 
to engage in more price competition.
  But what about Walmart? This is the monster of retailers in terms of 
size, about 10 percent of all of the sales in America. I can tell you, 
even with Walmart, Target is looking over its shoulder. It is watching 
the prices of goods and deciding whether it can be competitive. So 
there is competition at this level.
  If we give retailers a break when it comes to the amount they have to 
pay to the banks and credit card companies, I think it is going to end 
up in consumer benefits. The consumer organizations, the major ones in 
this town, support what I have done. They aren't supporting the 
position of the big banks and credit card companies.

  One of the arguments that comes down is interesting. The lion's share 
of the argument against my amendment is not coming from the people 
directly affected by it. We are not hearing as much in Washington from 
those big banks on Wall Street or the credit card companies, and they 
are the ones most affected by it. Why? They don't have much credibility 
around here. These are the folks who came filing in for a bailout when 
they made some pretty bad decisions and got billions of dollars from 
the Federal Government to bail them out, and then, of course, they 
turned around and gave bonuses and all sorts of high-level compensation 
to their officers. So they are not the most popular crowd on Capitol 
Hill. So they have brought in surrogates to argue their position, and 
the surrogates, as my colleagues know, are the small banks and small 
credit unions saying the Durbin amendment is terrible.
  The first thing we have to say to them is: You are exempt. You are 
not covered by the Durbin amendment. If you have $10 billion in assets 
or less, you are not covered. Still, they argue, at the end of the day, 
we think this might hurt us.
  I have taken an extra step, beyond the law, to try to deal with some 
of their concerns because I value these community banks and credit 
unions. I worry they have now become part of the banking industry--in 
capital letters--instead of what they were traditionally: our 
neighborhood banks, our small town banks, our local credit unions. They 
have now become part of this big banking industry thing. I don't think 
it is healthy for them, and I don't think it is healthy for the economy 
or for consumers. So what I did was go to the merchants coalition on my 
side of this issue, the retailers, and ask them to put out a statement 
of policy when it comes to whether they are going to discriminate on 
the card that is presented.
  Let me be more specific. If you are running a restaurant in Wheeling, 
WV,

[[Page S2717]]

and somebody walks through the door and puts a debit card--these are 
all debit cards--puts a debit card down to pay for the meal, will your 
restaurant take a close look and say: Oh, that is a community bank with 
a higher interchange fee than it might be with a card from Chase Bank, 
for example? That is one of the concerns expressed by the community 
banks and credit unions. Even though you exempted us, all these 
retailers could discriminate against us because our swipe fee is higher 
than it might be coming out of Chase.
  We ended up with a letter--an important letter--which I have shared 
with every one of my colleagues, and it is a letter from the Merchants 
Payment Coalition, which I ask unanimous consent to have printed in the 
Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                 Merchants Payments Coalition,

                                      Washington, DC, May 2, 2011.
     Hon. Dick Durbin,
     Majority Whip, U.S. Senate,
     Washington, DC.
       Dear Senator Durbin: We understand that some in the 
     financial services industry are claiming that the Durbin 
     Amendment exemption from interchange ``swipe fee'' regulation 
     for financial institutions with assets under $10 billion will 
     not be effective in practice because merchants will 
     discriminate against debit cards with higher swipe fees. On 
     behalf of the undersigned trade associations, and the tens of 
     thousands of merchants and retail locations we represent, we 
     are writing to make clear that we have no contractual or 
     practical ability to treat debit cards issued by small 
     financial institutions or credit unions differently than 
     those issued by large institutions. Furthermore, our member 
     companies are committed to customer service and it is not in 
     their interest to discriminate against debit cards that so 
     many customers carry.
       Currently, merchants are subject to Visa and MasterCard 
     network rules that require us to accept all Visa and/or 
     MasterCard debit, regardless of which bank or credit union 
     issues the card. This is called the Honor All Cards rule and 
     we risk the threat of $5,000 per day fines--or higher--if we 
     break this rule, so we assure you that merchants have no 
     intention of violating this term of brand acceptance. These 
     rules also prevent merchants from pricing goods differently 
     based upon the financial institution that issued the card.
       Additionally, even if these rules were not in place, 
     merchants have no practical ability at the point-of-sale to 
     distinguish between big bank and small bank cards, nor the 
     swipe fee rates associated with those cards. Indeed, in many 
     if not most retail environments, employees never see the face 
     of the card the customer is using: the customers swipe their 
     cards themselves.
       Lastly, even if merchants could differentiate between card 
     issuers, there are no market or economic incentives to 
     discriminate against mid-sized and smaller financial 
     institutions' cards. If a customer wants to pay with a card, 
     merchants will let them use that card because the retail 
     industry is fundamentally all about competing to deliver 
     value and customer service. If merchants didn't accept the 
     card, they would risk losing the sale and losing the 
     customer; a risk very few in the competitive retail industry 
     are willing to take. Additionally, most consumers only have 
     one debit card in their wallet. We would absolutely prefer 
     they pay with that debit card, rather than with a credit 
     card, because while debit card per transaction rates have 
     grown exponentially over the past several years, credit card 
     swipe fees are far higher and continue to be a significantly 
     more costly burden on businesses of all sizes.
       We appreciate the opportunity to set the record straight 
     regarding the many misrepresentations being made about the 
     Durbin Amendment, and you have our commitment that the retail 
     community across the nation will do its part to help ensure 
     that the exemption of financial institutions with less than 
     $10 billion in assets from the swipe fee reforms on debit 
     cards will work in the marketplace.
           Sincerely,
         American Beverage Licensees; Coalition of Franchisee 
           Associations; Food Marketing Institute; Interactive 
           Travel Services Association; International Franchise 
           Association; National Association of College Stores; 
           National Association of Community Pharmacists; National 
           Association of Convenience Stores; National Association 
           of Shell Marketers; National Association of Theatre 
           Owners; National Association of Truck Stop Operators; 
           National Council of Chain Restaurants; National 
           Franchisee Association; National Grocers Association; 
           National Restaurant Association; National Retail 
           Federation; National Small Business Association; 
           Petroleum Marketers Association of America; Retail 
           Industry Leaders Association; Society of Independent 
           Gasoline Marketers of America.

  Mr. DURBIN. Thank you, Mr. President. Let me quote a few words from 
it. This is a letter to me, dated May 2:

       Dear Senator Durbin:
       We understand that some in the financial services industry 
     are claiming that the Durbin Amendment exemption from 
     interchange ``swipe fee'' regulation for financial 
     institutions with assets under $10 billion will not be 
     effective in practice because merchants will discriminate 
     against debit cards with higher swipe fees. On behalf of the 
     undersigned trade associations, and the tens of thousands of 
     merchants and retail locations we represent, we are writing 
     to make clear that we have no contractual or practical 
     ability to treat debit cards issued by small financial 
     institutions or credit unions differently than those issued 
     by large institutions. Furthermore, our member companies are 
     committed to customer service and it is not in their interest 
     to discriminate against debit cards that so many customers 
     carry.
       Currently, merchants are subject to Visa and MasterCard 
     network rules that require us to accept all Visa and/or 
     MasterCard debit, regardless of which bank or credit union 
     issues the card. This is called the Honor All Cards rule and 
     we risk the threat of $5,000 per day fines--or higher--if we 
     break this rule, so we assure you that merchants have no 
     intention of violating this term of brand acceptance. These 
     rules also prevent merchants from pricing goods differently 
     based on the financial institution that issued the card.

  The No. 1 complaint of community banks and credit unions about 
discrimination against their cards is addressed directly by this 
letter. I have made this a part of the Record. It is being sent to 
every Member of the Senate.
  There is a second part of this argument. The question is whether Visa 
and MasterCard, the networks, will continue to allow the community 
banks and credit unions to charge a higher interchange fee than the big 
banks. Under our law, there is no reason to change it. So I am 
challenging Visa and MasterCard and these card networks to state 
clearly and unequivocally, as this letter has stated, that they will 
not discriminate against these smaller banks, community banks, and 
credit unions. The merchants have come forward as a matter of record, 
and it has been put in the Congressional Record this day, to say there 
will be no discrimination. At the end of the day, if Visa and 
MasterCard will make the same promise of no discrimination, then 
ultimately there is no disadvantage to the community banks and credit 
unions. None. Now the burden is on the big credit card networks to step 
up to the plate.
  I am sending a letter today to the president and CEO of the Illinois 
Bankers Association, the Illinois Credit Union League and the Community 
Bankers Association of Illinois and we are going to send it to their 
national affiliates as well, sending them a copy of this merchants 
letter so they can no longer make the claim that they are going to be 
victims of discrimination by merchants and retailers and asking them to 
now step up and join us in challenging Visa and MasterCard and the 
major card networks. That, to me, resolves the most fundamental issue 
that has been brought to the Members of the Senate. They can no longer 
claim that these retailers are going to discriminate against them. As a 
matter of record, they will not.
  I think it is important for us to change this system, and I think it 
is important for these virtual monopolies of Visa and MasterCard to be 
held accountable. I think what we have done in passing this law and 
giving the Federal Reserve the authority to establish this rule is the 
right thing to do.
  Now there is a big effort afoot to stop us. The Presiding Officer 
knows that. They are lobbying such as I have never seen before on 
Capitol Hill. You would think there was $1 billion a month at stake, 
and there is. They are determined to stop the Federal Reserve from 
issuing a rule which says that retailers and merchants across America 
will be treated fairly. They are going to stop them, if they can, and I 
am going to fight them all the way. I am hoping my colleagues who 
joined me in this vote and those who share my feelings about small 
business across America will stand with me.
  I know the alternative. The largest banks in America and the credit 
card companies have a lot of friends, and they are very powerful, but I 
think we ought to give the Federal Reserve the chance to issue 
reasonable final rules.
  In fact, talk to any bank across the country, and they are going to 
tell you that the current system is working just fine. They don't want 
reform. They don't want any change. They

[[Page S2718]]

want to keep it as is. It is worth billions of dollars to the major 
banks to keep this charge as is, at the expense of businesses across 
America.
  I favor transparency and I favor competition and I wish we didn't 
have to bring the Federal Reserve into this conversation. But we looked 
for a neutral regulatory agency that would establish a reasonable and 
impartial fee, promulgate a rule, issue it after a public comment 
period and implement it, and that is what we are striving to do.
  The CEO of JPMorgan Chase, who is a friend of mine--or at least he 
used to be--Jamie Dimon, has called interchange reform downright 
idiotic. He spent a good portion of his recent annual shareholder 
letter criticizing this reform. Chase has also sent a letter to its 
customers warning about my amendment, and Chase is constantly 
threatening to raise fees on its customers unless they stop the Durbin 
amendment. A few weeks ago, I sent Jamie Dimon a letter and responded 
to some of his criticisms. I ask unanimous consent that the letter be 
printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                                      U.S. Senate,
                                   Washington, DC, April 12, 2011.
     Jamie Dimon,
     Chief Executive Officer and President, JPMorgan Chase & Co., 
         New York, NY.
       Dear Mr. Dimon: In your recent annual letter to your 
     company's shareholders, you wrote a lengthy and dismissive 
     critique of the debit interchange fee reform legislation that 
     I drafted and that Congress enacted last year. You have also 
     been quoted describing my amendment as ``counterproductive,'' 
     ``price fixing at its worst,'' and ``downright idiotic.'' I 
     am compelled to respond, and I ask that you share this 
     response with your shareholders as well as your customers.
       Clearly, debit interchange reform has displeased many in 
     the financial services industry. Your industry is used to 
     getting its way with many members of Congress and with your 
     regulators, and my amendment and the Federal Reserve's draft 
     regulations were not written the way you wanted. But that 
     does not mean they were written poorly or that the process 
     that created them was flawed. To the contrary, interchange 
     reform will carefully but firmly rein in the fee collusion 
     that your bank and thousands of other banks currently engage 
     in through Visa and MasterCard. The wisdom of this reform is 
     confirmed by the irrationality of the arguments that your 
     industry raises against it--arguments that are based upon 
     misrepresentations and threats rather than evidence or logic.
       The American people deserve to know the real story about 
     the interchange fee system and the ways that banks in 
     general--and Chase in particular--have abused that system. I 
     have said and written much on this topic already, but I will 
     respond to five of your specific criticisms below.
       1. Your letter claims that my reform amendment ``is an 
     example of a policy that has little basis in fact or 
     analysis.'' In fact, the amendment was drafted based upon 
     years of Congressional hearings, Government Accountability 
     Office reports, academic articles, and published studies by 
     the Federal Reserve's economists and payment system experts. 
     These analyses showed that the debit interchange system is 
     uncompetitive, inefficient, and harmful to consumers. Your 
     industry often acts like these analyses do not exist, so I 
     will explain what they reveal.
       The debit interchange system is not a properly functioning 
     market. For years, card-issuing banks like Chase have agreed 
     to let the Visa and MasterCard duopoly fix the interchange 
     fee rates that banks receive from merchants each time a debit 
     card is swiped. The banks get the fees but they do not set 
     the fees. This system of price-fixing by Visa and MasterCard 
     on behalf of thousands of banks has gone entirely 
     unregulated.
       There are two core problems with Visa and MasterCard's 
     fixing of interchange rates. First, centralized rate-fixing 
     does not give card-issuing banks incentive to manage their 
     operational and fraud costs efficiently. This is because all 
     banks in the network are guaranteed the same network-fixed 
     interchange rate whether they are efficient or inefficient. 
     Competition is absent and inefficiency is subsidized when 
     fees are set in this manner.
       Second, Visa and MasterCard have incentive to constantly 
     increase interchange rates and there is no countervailing 
     market force to temper these fee increases. Visa and 
     MasterCard want as many of their debit cards to be swiped as 
     possible because they are paid a network fee by merchants 
     each time a card is swiped. By raising interchange rates, 
     Visa and MasterCard can entice banks to issue more of their 
     cards. Because Visa and MasterCard have enormous market power 
     and control around 80 percent of the debit cards in 
     consumers' wallets, merchants cannot realistically say no to 
     accepting Visa and MasterCard and have no leverage to 
     negotiate fee rates with them. There is no naturally-
     occurring market force in today's interchange system that 
     would ever lead rates to go down.
       So merchants are stuck with ever-rising debit interchange 
     fees that add up to more than $16 billion each year. These 
     fees not only affect merchants, but also universities, 
     charities, government agencies and all others who accepts 
     debit cards as payment. The fees end up getting passed on to 
     consumers in the form of higher retail prices for groceries 
     and gas. Consumers, and particularly unbanked consumers, 
     ultimately bear the cost of subsidizing the interchange 
     system.
       We owe it to our nation's consumers and businesses to 
     ensure that the interchange system is efficient, transparent, 
     and subject to competitive market forces. Studies have shown 
     that Americans pay the highest debit interchange rates in the 
     world, and that these rates have continued to increase in 
     recent years. The Federal Reserve has also found that the 
     high interchange rates charged today far exceed what it 
     actually costs to conduct a debit transaction. Nearly every 
     other industrialized country has established reasonable 
     regulation over their debit systems, and these countries have 
     achieved improved efficiency, lower fraud, and consumer 
     benefits. The time has come for reasonable reform of the 
     dysfunctional U.S. debit interchange system, and my amendment 
     will make that reform a reality.
       2. You say that ``it's a terrible mistake and also bad 
     policy for the government to get involved in price fixing.'' 
     Of course, my amendment does not create price fixing--it 
     constrains the price fixing that Visa and MasterCard 
     currently perform on banks' behalf. Visa and MasterCard 
     cannot simply be trusted to fix interchange prices in a way 
     that is fair for all participants in the debit card system. 
     They have not proven worthy of that trust.
       Last year Congress decided that there should be reasonable 
     regulatory constraints placed on Visa and MasterCard to 
     ensure that they cannot use their market dominance to funnel 
     excessive interchange fees to the nation's biggest banks. A 
     strong bipartisan majority supported my amendment, which said 
     that if Visa and MasterCard are going to fix fee rates on 
     behalf of banks with over $10 billion in assets, those rates 
     must be reasonable and proportional to the cost of processing 
     the transaction. It is important to make clear that if Chase 
     wants to set and charge its own fees in a competitive market 
     environment, the amendment does not regulate those fees. The 
     only regulated fees are those fees that banks let card 
     networks fix on their behalf.
       3. You criticize the law Congress passed because it does 
     not consider ``the cost of fraud.'' Your comment highlights 
     how the current interchange system, which supposedly does 
     consider the cost of fraud, creates exactly the wrong 
     incentives when it comes to fraud prevention. Fraud rates are 
     far lower for PIN debit transactions than for signature debit 
     transactions, but Visa and MasterCard set higher interchange 
     fees for signature debit than for PIN ostensibly to cover the 
     higher cost of fraud. Banks now urge cardholders to pay with 
     signature in order to get the higher fees. For example, on 
     April 21, 2010, the American Banker reported that your own 
     bank sent a mailing to your debit customers that strongly 
     suggested they should ``always select'' signature.
       Chase's practice of steering American cardholders toward 
     fraud-prone signature debit stands in stark contrast to 
     Chase's practices in Canada. The Chase Canada website 
     indicates that ``chip and PIN technology will become 
     available for all Chase Canada MasterCard and Visa cards in 
     2011.'' Your Canadian-based subsidiary Chase Paymentech 
     Solutions says on its website that chip and PIN technology 
     provides ``Enhanced Security and Fraud Reduction--Chip 
     technology is virtually impossible to copy and combining its 
     use with a PIN helps reduce lost, stolen or counterfeit 
     transactions.'' It is frankly inexcusable that your bank 
     would urge your American customers to ``always select'' a 
     fraud-prone technology while you provide your Canadian 
     customers with technology that enhances security and reduces 
     fraud.
       In contrast to the current U.S. interchange system which 
     rewards banks for promoting fraud-prone signature debit, my 
     amendment will allow interchange fee increases only to those 
     banks that successfully prevent fraud. The Federal Reserve 
     can implement this in its final rulemaking by setting target 
     fraud prevention metrics and allowing increased interchange 
     for banks that meet those targets.
       4. You say that Chase needs debit interchange fees to pay 
     for the ``fixed costs of servicing checking accounts and 
     debit cards'' such as ``printing and mailing of the cards,'' 
     ``operational and call center support to service the cards,'' 
     and ``the costs of ATMs and branches.'' Here you are using 
     the old financial industry trick of first conflating the cost 
     of conducting debit card transactions with the cost of 
     offering other checking account-related services, and then 
     arguing that network-fixed debit interchange rates should be 
     used to cover this whole basket of costs. It is a clever 
     argument that aims to justify Visa's and MasterCard's 
     exorbitant price-fixed rates, but the shortcomings of this 
     argument are evident.
       The costs you cite in your letter are costs which banks 
     should be incentivized to manage efficiently, and allowing 
     Visa to fix interchange fee rates across all its member banks 
     to supposedly cover these costs is a recipe for inefficiency 
     and excess. Card network companies like Visa are not 
     positioned to know what the appropriate level of cost is

[[Page S2719]]

     for operating ``ATMs and branches,'' nor are they equipped to 
     determine how much of a particular bank's ``printing,'' 
     ``mailing,'' ``operational'' and ``call center'' costs are 
     attributable to debit cards instead of ATM cards or credit 
     cards. Further, Visa has no way of knowing if a particular 
     bank is using debit interchange revenue not to cover 
     legitimate costs but instead for rewards, ads, profit, or 
     executive bonuses. Indeed, because Visa itself profits by 
     incentivizing banks to issue more and more of its cards, Visa 
     has every incentive to inflate the interchange fees it fixes 
     to levels that compensate banks far in excess of their costs. 
     In order to correct these incentives for inefficiency and 
     excess, my amendment limits network interchange price-fixing 
     on behalf of the 3 biggest banks to an amount that is 
     reasonable and proportional to the costs that are necessary 
     to authorize, clear and settle a particular debit transaction 
     over the network's wires.
       Also, your claim that interchange fees must be high enough 
     to cover all checking account-related costs is undermined by 
     the fact that banks also charge many other high consumer fees 
     under the premise of covering those exact same costs. Banks 
     like Chase charge consumers many fees for maintaining and 
     accessing funds in their checking accounts--monthly fees, 
     overdraft fees, failed payment fees, ATM withdrawal fees, 
     failure to maintain a minimum balance fees, account closing 
     fees, and more. Bank revenues from these consumer fees have 
     not gone down in recent years as interchange fee revenues 
     have gone up; to the contrary, bank revenues from consumer 
     fees have also reached record highs. I would draw your 
     attention to the November 12, 2008, Wall Street Journal 
     article entitled ``Banks Boost Customer Fees to Record 
     Highs'' and the July 1, 2009, New York Times article entitled 
     ``Bank Fees Rise as Lenders Try to Offset Losses,'' both of 
     which discuss your bank and other banks' efforts to raise 
     consumer fees long before my amendment was ever written.
       5. You say that the amendment ``potentially will harm 
     consumers'' because ``banks will be forced to lose money on 
     debit interchange transactions and likely will compensate by 
     increasing fees in some way for deposit customers.'' This 
     threat defies both facts and logic.
       First, there is no evidence that banks cannot continue to 
     offer debit cards profitably with reduced interchange. As 
     Andrew Martin explained in the excellent January 4, 2010, New 
     York Times article entitled ``How Visa, Using Card Fees, 
     Dominates a Market,'' up through the early 1990s banks used 
     to offer debit cards even though they received no interchange 
     fees. In fact, many banks used to pay merchants for accepting 
     debit cards, because debit cards saved money for banks when 
     compared to the banks' costs of processing paper checks. The 
     current high-fee debit interchange system in this country 
     only developed because Visa entered into and took over the 
     debit market the mid-1990s through an antitrust violation, 
     and Visa then imported credit card-type interchange fees into 
     the debit space. Studies have shown that many other countries 
     enjoy vibrant debit systems with interchange fees strictly 
     regulated or prohibited entirely. In short, past experience 
     in this country and present examples in other countries 
     demonstrate that banks like Chase can easily continue to 
     offer debit card services without the excessive subsidy of 
     high interchange fees.
       Second, if Chase follows through on threats to increase 
     consumer fees (beyond those increases you have already made 
     in recent years), market competition would suggest that many 
     of your deposit customers would take their business 
     elsewhere. In fact, many of those customers would likely take 
     their business to the small banks and credit unions who are 
     exempted from my amendment's interchange fee regulation and 
     for whom Visa and other debit networks have already agreed to 
     set a higher tier of interchange rates. And for those who 
     continue to speculate that my amendment will hurt small banks 
     and credit unions, I recommend they read Simon Johnson's 
     excellent analysis in the April 7 New York Times entitled 
     ``Big Banks Have a Powerful New Opponent.''
       In conclusion, I recognize that Chase will likely see 
     decreased revenue from interchange reform, but I urge you to 
     keep some perspective. Last year Chase had $17.4 billion in 
     profits--up 48 percent from the previous year--and a 15 
     percent profit margin. Your own personal compensation 
     ``jumped nearly 1,500 percent to $20.8 million in 2010'' 
     according to Reuters. In contrast, middle-class American 
     families are struggling to get by in a tough economy--an 
     economy that went south because of the banking industry's 
     unregulated excesses.
       There is no need for you to threaten your customers with 
     higher fees when you and your bank are already making money 
     hand-over-fist. And there is no need to make such threats in 
     response to reform that simply tries to spare consumers from 
     bearing the cost of interchange fees that are anticompetitive 
     and unreasonably high.
       Interchange reform is necessary and it is long overdue. 
     Right now the Fed is working diligently to craft a set of 
     final regulations that will reflect the comprehensive 
     information it has gathered and that will respond to the 
     valuable comments it has received. In the coming weeks I am 
     confident the Fed will produce a reasonable set of reforms 
     that will enhance the efficiency, competitiveness and 
     fairness of the debit system. This will neither be 
     ``counterproductive'' nor ``idiotic.'' It will be good news 
     for all Americans.
           Sincerely,
                                                Richard J. Durbin,
                                            United States Senator.

  Mr. DURBIN. Thank you, Mr. President. I haven't had a reply yet from 
Mr. Dimon. He called me. I called him back. That seems to be the end of 
our exchange. But I would like to hear his response. I encourage him to 
share my letter with the same shareholders and customers to whom he has 
written. After all, in his shareholder letter, Mr. Dimon said he wanted 
``analysis in the full light of day'' of the Durbin amendment, so I 
figured he would want his audience to be informed on my position. I 
don't think Chase has done that yet. I hope they will.
  I know the banking industry prefers for the giant Wall Street banks 
to stay in the background when it comes to this fight because they are 
not that popular. Estimates indicate that about half of all debit swipe 
fees go to just 10 big banks and the Big Three, Bank of America, Chase, 
and Wells Fargo, make the most of all, well over $1 billion a year 
each. But the banking industry knows the public isn't happy with big 
banks, so the industry is using small banks and credit unions as their 
public face in this battle. Industry argues that even though my 
amendment exempts all but the largest 1 percent of banks from fee 
regulation, the exemption will not work and small banks are going to 
get hurt. Well, this letter makes it clear that when it comes to 
retailers and merchants, there will not be any pain inflicted. They 
are, in fact, exempt under the law and they will be exempt in practice.
  As I said, I received a letter from 20 of the Nation's largest retail 
associations that reaffirms what I just said. I think the letter is 
compelling. In this letter, these merchant groups make it clear they 
don't have the contractual authority, the practical ability or the 
economic incentive to discriminate against small bank or credit union 
debit cards. They point out that Visa and MasterCard contracts impose 
strong penalties on them even if they try. Second, they point out that 
in many, if not most, retail environments, the merchant doesn't have 
the practical ability to distinguish between a small bank or a large 
bank card at the point of sale.
  I had Wendy Chronister, whose family owns a chain of gas stations in 
downstate Illinois, come to my office and talk about this. I have known 
her mom and dad a long time, and Wendy is running the business and 
running it well. She said: Senator, for goodness' sake, when they put 
the plastic on the counter we take it. We need the sales. We are not 
going to argue with them about who issued the credit card or debit 
card. That just stands to reason. They are not going to ask them to put 
their debit cards away when they come to a cash register. They will 
lose sales and customers if they do it.
  Finally, the merchants make the observation that most customers only 
have one debit card, so if you want to make a sale, they are going to 
take that debit card.
  What I have tried to do with this letter is to show that those on my 
side of this debate--the small businesses, the retail merchants, 
convenience stores, hotels, and restaurants across America--are trying 
to be reasonable. Had the credit card companies and major banks been 
reasonable on this issue, I never would have introduced this amendment. 
They refuse--refuse--to bargain with the retailers and merchants. They 
said it was a ``take it or leave it,'' and they did it in the obscurity 
of retail contracts and regulations which are almost impossible to work 
through.
  I think those who are asking for a delay and study of this issue 
should be called out for what they are asking. Every month they delay 
means customers and consumers across America will pay over $1 billion 
more in these fees on debit cards--money taken away from retailers, 
taken away from small business, and taken away from our economy. When 
these small businesses have the advantage they can get under the Durbin 
amendment, they are going to be able to be more profitable, expand 
their businesses, and hire more people. How many times have we heard a 
speech on the floor that the key to economic recovery in America is 
small business. If you truly believe, then you cannot vote for this 
2\1/2\-year delay and study of this issue, if you truly believe

[[Page S2720]]

in small business. I think the issue is very clear.
  I urge my colleagues not to fall for this game the banks and card 
companies are playing. Don't let them delay and derail the swipe fee 
reform consumers need so badly. The Senate has already voted to 
establish a process for interchange reform. We should let that process 
continue and we should let the Federal Reserve issue their rules, which 
they are planning to do in just a matter of weeks, and I think at that 
time we will see that there is a reasonable way to deal with this that 
doesn't create a disadvantage for community banks and credit unions.
  (Mr. CARDIN assumed the chair.)

                          ____________________