[Congressional Record Volume 157, Number 82 (Wednesday, June 8, 2011)]
[Senate]
[Pages S3571-S3575]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
DEBIT CARD SWIPE FEES
Mr. DURBIN. Madam President, this afternoon there will be a critical
vote that will take place on the Senate floor. It is one of the most
controversial, business-oriented votes that we have faced. Leading up
to this vote has been one of the most heated debates and exchanges that
many of us in the Senate have seen in our time. It relates to an issue
that affects almost every American family, and certainly all American
businesses, and the financial community. It is a basic question that
needs to be resolved on the Senate floor.
My friend and colleague from Montana, Senator Jon Tester, is offering
an amendment, which I oppose. I have the highest respect for Jon. We
have discussed this, and our friendship remains strong throughout this
debate.
[[Page S3572]]
We just see this differently. Whatever the outcome of the vote, I
certainly am going to continue my strong friendship with Jon and be a
fan of what he brings to the Senate and what he does for the State of
Montana.
Joining him in this amendment is Senator Bob Corker of Tennessee. I
have the same high regard for Senator Corker, and any remarks that I
make today are no reflection on them at all. I think they are both
honorable people who are standing tall for their point of view, with
which I happen to disagree. But I want to make it clear that I think
this is a historic vote, a threshold vote in terms of whether the
Senate, the Congress, and the Government of the United States will step
into a situation that has created a fundamental unfairness. And this is
the unfairness.
When we use debit cards, or plastic, to pay for a transaction, there
is a fee that is collected. It is a fee that is paid to banks and, of
course, paid to the issuing credit card network. The merchant or
retailer that accepts that plastic, that debit card, has no voice in
determining what that fee will be, and it is invisible.
Just one floor below us in the Capitol is a carryout. I went there
this morning to pick up a little breakfast, and there was a young
lady--a Capitol Hill policewoman--in front of me. She took a package of
chewing gum and put it on the counter and handed her debit card to the
cashier. The chewing gum cost $1.20. The average fee paid by the
merchant--in this case, the proprietor of the carryout--is 44 cents on
that transaction, more than one-third of the cost of the pack of
chewing gum. The owner of the carryout had no voice in that fee. It is
a fee that has been imposed on that merchant by the credit card network
that issued the debit card.
A year ago, we took up this issue and asked, Is it fair or
reasonable? The reason I think we need to take a look at this is, in
the United States of America the so-called swipe fee is dramatically
greater than in virtually any other country in the world. The same
networks, Visa and MasterCard, charge, on average, 1.14 percent on
every transaction using a debit card. If one goes to the European
Union, the average debit interchange fee is .2 percent, less than one-
fifth of what is charged in the United States by the same credit card
network. Then, of course, take a look at Canada, just north of the
United States, where there is no--zero--interchange fee charged on
debit card transactions.
Why is the United States, through its consumers, small businesses,
and large retailers alike, paying so much more? These credit card
networks, through their issuing banks, are charging this because they
can. There is no restraint whatsoever--at least there wasn't until last
year.
We had a debate on the floor of the Senate, and we asked--on behalf
of consumers, small businesses, retailers, and merchants all across
America--should we establish a reasonable fee for the use of a debit
card? We voted, with 64 votes, to do that. The fee is to be established
by the Federal Reserve.
Most everyone would concede two things. First, the Federal Reserve is
not partisan. It is going to make this judgment based on the economics
of the marketplace, in terms of what the fee should be. Second, if
there is any bias at the Federal Reserve, it is not toward consumers.
This is not a consumer protection agency. No one has ever called it
that. It is an agency which, by and large, is more comfortable in the
boardrooms of major banks. So we gave them this responsibility.
What the Federal Reserve came up with, after 5 or 6 months of
investigation, was a startling discovery; and that was the interchange
fee being charged on debit card transactions in the United States, on
average, was 44 cents--that is what the 1.14 percent translates into,
44 cents a transaction--and the actual cost to the debit card network
issuing banks was in the range of 12 cents.
What is being charged to consumers and small businesses all across
America is more than three times the reasonable and proportional cost
of the transaction. At that point, the Federal Reserve said: We are
going to sit down as instructed by this law passed by Congress and
signed by the President and come up with a reasonable interchange fee.
They confessed--Chairman Bernanke and others said it was a challenge,
and it is. But they said they were going to do it, and do it right, and
they needed more time. Chairman Bernanke called me and said: I need an
additional 6 to 8 weeks to do that. I said I was sorry to hear that.
They had more than 11,000 comments posted to the Federal Reserve
about what this debit fee should be, what is a reasonable fee. They are
about to announce, before the end of this month, what it is going to
be. I don't know what their report will say. I suspect it will be
somewhere between 12 cents and 44 cents, with many other provisos
included. That is where we stand.
Under the law passed last year, this new debit card interchange fee
rule would go into effect July 21. Well, needless to say, it has
generated a lot of controversy, particularly among the card networks,
Visa and MasterCard, and the issuing banks that issue these debit
cards. They don't like this at all.
As Senator Dale Bumpers of Arkansas--who used to sit right back
there--used to say: They hate this interchange fee regulation ``like
the devil hates holy water.'' They have done everything in their power
to stop the Federal Reserve from issuing a rule that would bring down
this 44-cent charge on every swipe of our plastic debit cards. Of
course, they want to do it before the Federal Reserve issues their
rule.
Today on the Senate floor, at 2 o'clock this afternoon, the banks and
credit card companies get their chance to stop the Federal Reserve from
coming forward with this new approach to the interchange fees.
As you can imagine, it is a titanic struggle because of all the
retailers and merchants in the United States. From Walmart, on down to
the corner bodega in Manhattan, or the corner store in Chicago, they
are all involved. When I get into the car that picks me up at O'Hare to
take me to my apartment in Chicago, my driver says: We are pulling for
you. Every time somebody gives us a debit card, we end up paying more
and more because of it.
I think the reach of these charges may surprise a lot of people. Here
is a letter that we received yesterday from Tom Gordy, president of the
Armed Forces Marketing Council. He writes and says:
On behalf of the member companies of the Armed Forces
Marketing Council, I want to offer our sincere appreciation
for your efforts to curb the skyrocketing costs to retail
business through debit card fees.
Our particular concern about debit card fees is the adverse
impact the fees are having on the pocketbooks and the quality
of life of military families through the military exchange
systems.
As you are aware, the military exchanges provide a non-pay
compensation benefit to military families and support
military families' financial readiness by offering name brand
products at an average savings of over 20
percent. Additionally, the profits generated by the
military exchanges are given back to the military
community through dividends that support quality of life
programs on military bases, including childcare centers,
movie theaters, gyms and swimming pools, to name a few.
Let's bring it back to the Senate floor now, and here is what he
writes:
Currently, the three military exchange systems--Army-Air
Force Exchange System, Navy Exchange Command and the Marine
Corps Exchange--are having to pay well over $100 million per
year combined in interchange fees and interchange fees are
the fastest growing uncontrollable expense to the military
exchange system.
As interchange fees continue to increase, the military
exchange systems must either absorb the costs, thus reducing
the dividends that support essential military quality of life
programs, or they must pass the cost of the fees on to the
military family by raising prices. Either way, military
families lose because of interchange fees.
That is just one example, but an example that should hit close to
home to us because it is an example that reflects on the quality of
life of people we care for very much--military families--who sacrifice
for this Nation. A system which is designed to help them is paying over
$100 million a year to the issuing banks for the Visa and MasterCard
debit fees. Is $100 million reasonable? If next year it is twice that,
is that amount reasonable?
Most people would argue, if you believe in a free market system, you
believe in two things: transparency, so people know what the rules of
the game are--the actual prices and cost--
[[Page S3573]]
and competition. The honest answer is there is no competition here.
Visa and MasterCard literally dictate these fees that are collected.
What choice does a merchant have? Could you stay in business today and
not take plastic? I guess some people do, but not many. The reality is
more and more people are using plastic to buy things as basic as a pack
of chewing gum for $1.20, which I saw this morning.
That is what this debate comes down to. The question is whether we
will let the Federal Reserve issue this rule, take a close look at it,
watch its implementation, and then respond, if needed. I don't know if
their rule will be excellent or need help. I am prepared to stay the
course with it. If we need to address it in any aspect with further
legislation, I want to do that.
I particularly want to address my friends--at least those friends I
have left--in the banking community. I am not going to stand here in
defense of Wall Street. I think they have had quite a bit of friendship
and love thrown their way by this Congress over the last few years. I
am going to say, though, when it comes to community banks and credit
unions, I think they deserve an exemption. It was included in the law.
If we need to provide any other reassurances after the rule is issued,
I will be there. I believe I can speak for the merchants and retailers,
that they will be there as well. They have never disputed this issue of
the community banks and credit unions being treated differently than
the big banks.
But I do want to make it clear what is going on here in terms of the
biggest banks that issue these debit cards. There is $1.3 billion a
month collected in debit card interchange fees--$1.3 billion--which is
more than $15 billion a year. Three banks--Bank of America, Chase, and
Wells Fargo--control 50 percent of the debit card market, and they will
collect nearly $7 billion in fees this year off of these debit cards.
As I mentioned, the merchants and retailers have no voice in this. They
pay what they are told they have to pay and they collect it from
consumers.
Jamie Dimon is a person I have known. He is the CEO of Chase Bank. I
worked with him when he was in Chicago. I had many conversations with
him when he moved back to New York. I respect him for his business
acumen. But he has been particularly pointed in going after this
regulation of interchange fees. He has called it idiotic, in letters to
shareholders and his customers. Chase has written to all of their debit
card customers across the United States and said this so-called Durbin
amendment--incidentally, it isn't an amendment anymore, it is a law--
will mean that Chase will have to raise fees on the people holding
debit cards because they will collect less from debit card interchange
fees.
That seems to make sense, doesn't it? If less revenue is coming in,
they will have to make it up some way. But I want to call to the
attention of those who are following this debate to this fact: The
bonuses distributed by the banks on Wall Street last year amounted to
$20.8 billion. If they lost every nickel in interchange fees on debit
cards, it wouldn't even get close to the amount they paid out in
bonuses to their executives.
So before Mr.--before the Chase Bank--I don't want to be personal
about this--threatens its customers about increased fees and reduced
benefits, let them be honest with their customers about the bonuses
that are being paid. That bank--Chase--if I am not mistaken, had an
increase in annual earnings of 48 percent this year. They are doing
quite well, thank you.
And for the record, let me remind those who are following this debate
that the taxpayers of America were asked to stand by these banks in one
of their darkest hours when we faced this recession. Many of us believe
it was brought on by some awful practices on Wall Street and among
other banks, insurance companies, and financial institutions around the
world. But in their darkest hour, when things were toughest, where did
they turn for help? Not the good old free market system, but the
Treasury of the United States of America. So in the end we gave--we
gave--$25 billion to the Chase Bank. We gave $45 billion to Bank of
America and $25 billion to Wells Fargo to help them through their time
of need.
Oh, sure, they survived and they paid us back. But what was their
gratitude? How was it reflected? It was reflected by these banks, after
receiving taxpayer money to get them out of the hole they dug for
themselves, turning around and awarding bonuses to their executives
right and left. That is not an expression of gratitude where I come
from. Now they come to us and say, we want you to continue this
interchange fee subsidy, 50 percent of which goes to the three largest
banks in the United States of America.
I think it is time for us to say no. I think it is time to stand for
consumers and small businesses across America who have no voice, no
power, and deserve our help in making this system fairer, more
transparent, and more competitive.
The amendment before us is one I want to address specifically.
Because instead of letting the Federal Reserve issue their rule at the
end of this month--measuring whether its impact is as we had planned,
responding, if needed, to changes--what the banking community and the
credit card networks want to do is to kill this rule literally in the
cradle before it has a chance to be issued, before it has a chance to
be implemented. I think that is plain wrong.
Right now, I hear my colleagues who come to the floor offering this
amendment--both Senator Corker and Senator Tester--saying this is a
compromise. This is a compromise.
This is not a compromise. A compromise involves sides with differing
views sitting down together and working out their differences. I wasn't
invited to any meeting to come up with this so-called compromise. The
merchants and retailers and businesses across America were not
invited--not at all. There were no representatives of consumers in
these meetings for this grand compromise. This was a compromise between
the biggest banks, the medium-sized banks, and the small banks. So it
is a bankers' compromise for bankers' benefit. That is what it comes
down to.
In the last 2 days alone, letters opposing this amendment have been
sent by consumer groups--military exchanges, as I mentioned, 11
colleges and university associations--because, incidentally, our kids
at college bookstores, using debit cards, are actually paying more for
their books because of these fees as well--308 national and State
merchant trade associations and 6,500 small businesses. They are all
opposing this so-called compromise amendment, though it isn't a
compromise.
Secondly, this amendment is described as a 1-year delay of the
interchange rulemaking. Actually, it is an open-ended delay. The
bankers who wrote this very carefully crafted it. The amendment
requires the Federal Reserve's rules to be rewritten in 1 year, but it
doesn't set an effective date for the revised rules. There is no
telling when, if ever, these rules will go into effect. This delay
could be significant, and from the banks' point of view, the longer the
delay, the better, because it is worth $1.3 billion a month for every
month they can delay it. And how long would they like to delay it?
Forever.
Then there is this idea of needing a study after the Federal Reserve
put 12 months into reviewing this issue, considering thousands of
comments to promulgate this rule. The amendment sets up a study of the
interchange system that only takes into account the views of the
banking regulators. Search the amendment--the Tester-Corker amendment--
for one indication there will be anyone sitting in the room
representing the consumers or small businesses of America for this
study. They are not invited. Not welcome. Not part of the conversation.
Is this another compromise--a compromise that just involves banking
regulators sitting down to decide what is in the best interest of
consumers? Would you want your fate left to their hands as a consumer?
Not me.
The study, incidentally, is loaded--the so-called triggers in the
study, if you take a look at them. If the bank regulators deem that any
of the triggers are met, they have to throw out what the Federal
Reserve has done and start over. Well, guess what, the triggers are
written in a way that this is a foregone conclusion. These triggers
will be met. As each trigger mirrors public statements the public
regulators have already made about the Fed's
[[Page S3574]]
draft rules, this is loaded. There is nothing objective or unbiased
about this whatsoever.
The amendment essentially mandates a complete rewrite of the Federal
rules by the banking regulators for the banking industry in favor of
the banks.
Let me mention something else I think is outrageous about this. What
the banks have said is, we don't want to measure the reasonable and
proportional cost of a debit transaction to establish the fee we are
going to impose. We want to include every variable and incremental cost
we can consider. This amendment goes on for more than a page with all
the possibilities.
The amendment provides the Fed must rewrite the rules under a very
different standard than the law which currently exists. The new
standard is one the big banks have been begging for. The Durbin
amendment says the fee set by Visa and MasterCard, on behalf of the big
issuing banks, has to be reasonable and proportional to the costs
incurred that are ``specific to a particular electronic debit
transaction.'' The Tester-Corker amendment would require the Fed to let
Visa and MasterCard fix fee rates to cover bank costs that are not
specific to any debit transaction. The Tester-Corker amendment requires
the Fed to allow interchange fees to cover ``all fixed and incremental
costs associated with debit card transaction and program operations,
including incentives.''
This is a truck-size loophole the banks are begging for, because they
know they can get up to 44 cents and beyond if they can add everything
in from the cost of an ATM machine to executive compensation and
executive bonuses. So honestly, are we going to stand here and say we
cannot protect small businesses across America, struggling to survive,
from outrageous price-fixing by the credit card companies so we can
reward the issuing banks with bonuses? Is that what this is about? If
it is, it is a pretty stark choice.
This amendment is a big bank windfall. The amendment has been
described as an effort to help small banks, but it would undoubtedly be
a windfall for the Nation's largest banks. It would give them a free
pass to continue their anticompetitive practices for at least another
year, and then it would require the Fed to write rules in a way that
would enable big banks to justify the fees they are charging today. It
is a no-change amendment.
If you believe, as a Member of the Senate, the current system is fair
to businesses across America and we shouldn't change it, then voting
for this amendment will guarantee your position will be enshrined in
law. This proposed amendment is a gift to the big banks that will keep
on giving and deny swipe fee relief to small businesses and consumers
who desperately need it.
Madam President, I ask unanimous consent to have printed in the
Record these three letters I have received from the Armed Forces
Marketing Council, the American Council on Education, and Public
Citizen U.S. PIRG.
There being no objection, the material was ordered to be printed in
the Record, as follows:
Armed Forces Marketing Council,
Manassas, VA, June 7, 2011.
Hon. Richard J. Durbin,
U.S. Senate, Washington, DC.
Dear Senator Durbin: On behalf of the member companies of
the Armed Forces Marketing Council, I want to offer our
sincere appreciation for your efforts to curb the
skyrocketing costs to retail business through debit card
fees.
Our particular concern about debit card fees is the adverse
impact the fees are having on the pocketbooks and the quality
of life of military families through the military exchange
systems.
As you are aware, the military exchanges provide a non-pay
compensation benefit to military families and support
military families' financial readiness by offering name brand
products at an average savings of over 20%. Additionally, the
profits generated by the military exchanges are given back to
the military community through dividends that support quality
of life programs on military bases, including childcare
centers, movie theaters, gyms and swimming pools, to name a
few.
Currently, the three military exchange systems--Army-Air
Force Exchange System, Navy Exchange Command and the Marine
Corps Exchange--are having to pay well over $100 million per
year combined in interchange fees and interchange fees are
the fastest growing uncontrollable expense to the military
exchange systems.
As interchange fees continue to increase, the military
exchange systems must either absorb the costs, thus reducing
the dividends that support essential military quality of life
programs, or they must pass the cost of the fees on to the
military family by raising prices. Either way, military
families lose because of interchange fees.
The debit card interchange fee restrictions that you
authored will help save the military exchange systems tens of
millions of dollars per year, reducing the adverse impact
that interchange fees are having on the pocketbooks and
quality of life of military families.
We are hopeful that you will be successful in maintaining
the law that you authored to curb debit card interchange fees
and preventing any delays in its implementation.
Sincerely,
Tom Gordy,
President.
____
Office of the President,
American Council on Education,
Washington, DC, June 7, 2011.
U.S. Senate,
Washington, DC.
Dear Senator: I write on behalf of the higher education
associations listed below to oppose the Tester Amendment,
which would significantly delay regulatory implementation of
the debit card swipe fee reforms enacted last year in the
Dodd-Frank Wall Street Reform and Consumer Protection Act
(``Dodd-Frank Act''). We reiterate our support for these
needed reforms, which will provide real relief to students,
their families and colleges and universities across the
country, and urge that they be implemented in a timely manner
consistent with the Dodd-Frank Act.
Debit card swipe fees are a hidden expense for students and
families paying for college for which they receive no
benefit. As a result of the Dodd-Frank Act and the Federal
Reserve's proposed rule, we believe colleges and universities
will see reduced debit card costs which they will be able to
pass on to students through lower costs as well as increased
resources for institutional grant aid and student services.
In addition, implementing this reform will create an
opportunity for institutions to offer discounts to students
for payments made with checks and debit cards.
During this time of economic insecurity, steps like those
undertaken in swipe fee reform will help students and their
families manage the costs of college with increasingly
strained budgets.
We urge the Senate to reject the Tester Amendment and stand
with students and the colleges and universities that serve
them by ensuring that these debit card swipe fee reforms be
fully implemented in a timely manner.
Sincerely,
Molly Corbett Broad,
President.
On behalf of: American Association of Collegiate Registrars
and Admission Officers; American Association of Community
Colleges; American Association of State Colleges and
Universities; American Council on Education; Association of
American Universities; Association of Community College
Trustees; Association of Jesuit Colleges and Universities;
Hispanic Association of Colleges and Universities; National
Association of College and University Business Officers;
National Association of College Stores.
____
Public Citizen, U.S. PIRG, Federation of State PIRGs,
June 6, 2011.
Re Opposition to Tester, S. 575, To Delay Swipe Fee Reform.
Dear Senator: We, the undersigned consumer groups, write to
reinforce our continued support for the Durbin amendment to
reform debit card swipe fees that passed as part of the Dodd-
Frank Wall Street Reform and Consumer Protection Act of 2010.
The Federal Reserve Board of Governors has conducted enough
research and has adequate authority to issue a fair final
rule in this matter without the delays that would be imposed
by Senator Tester's proposal, S. 575, no matter how it might
be modified for the floor.
All consumers, whether they pay with cash or plastic, pay
more at the store and more at the pump due to the current
non-transparent interchange fee system, which is tantamount
to a wealth transfer from the poor to the rich. Recent
Federal Reserve research has shown that lower-income cash
consumers subsidize the rewards cards of more affluent
customers. Yet, retail is a highly-competitive industry where
cost savings are routinely passed along to consumers. There
is no reason to expect that retailers, in a marketplace where
numerous sellers routinely compare and change their prices on
a daily basis, would fail to pass along the savings from the
unfair anticompetitive interchange system. Yet, as the non-
profit and non-partisan American Antitrust Institute said in
a recent letter to Congress:
[The Durbin amendment] limits the amount of fees that can
be charged through a price-fixing network regime and allows
banks to charge unregulated fees if they simply compete on
their prices rather than set them centrally. If the limits
set by the Fed are low, that aids competition by giving a
large incentive for banks to actually compete by lowering
their fees. Banks with less than $10 billion in assets would
not have to compete, however, because they are exempt.
Certainly, banks with more than $10 billion in assets can
compete in the free markets by
[[Page S3575]]
setting their own prices rather than hiding behind the cartel
process overseen by Visa or MasterCard. What the Fed is doing
is to substitute competition for administered prices. (March
14, 2011)
As Senator Tester's legislation to delay implementation of
the Durbin amendment and the final Federal Reserve
regulations comes up for a vote on the Senate floor, we urge
your opposition to it or other efforts to weaken or delay the
Durbin amendment through Congressional action. Thank you for
your consideration of our views. If you or any of your staff
have any questions, please contact Ed Mierzwinski at U.S.
PIRG (202-461-3821 or [email protected]).
Sincerely,
Public Citizen,
U.S. PIRG.
Mr. DURBIN. Madam President, the groups that stand behind me on this
effort know what we are up against. When we take a look at the most
powerful special interest groups in Washington, we have to put the
banking industry near the top, if not on the top, of the ladder.
Throughout my career I have tackled them on the floor. I can recall
many years ago, brandnew to the Senate, when I said we ought to change
the banking laws so we would put an end to the so-called subprime
mortgages. I was in a debate with Phil Gramm of Texas, who said at that
time that if the Durbin amendment passed, it would be the end of the
subprime mortgage business. I lost by one vote. If I would have
prevailed, history might have been a little different. The subprime
mortgage mess created an economic downturn from which we still suffer.
I stood up as well when it came to this foreclosure crisis and said
that at some point these banks have to be reasonable. You just can't
take homes away from people, board them up, and watch them deteriorate
into nothing. You have to give people a fighting chance to stay in
their homes. I said at the end the bankruptcy court should have the
last word on that. The banking industry, the credit unions, the
community banks opposed me. Take a look across America today at the
foreclosed homes, in Chicago, in Aurora, in Springfield, all across my
State, and across this Nation. The outcome, years after I lost that
battle, certainly does not speak to a stronger America because of these
foreclosures. The banking industry beat me on that.
Last year, fighting for these small businesses, retailers, I stood up
and said: Somebody has to step up here and argue that there ought to be
fairness in the fees they charge to businesses and consumers across
America. We rallied 64 Senators--a bipartisan group--in support of
that.
The banks want a second run at this. They want to take this game into
overtime. They want to come back today and count their friends here and
hope they can come up with 60 in the hopes that if the big banks and
credit card companies can win this battle, we will leave them alone, we
will not ask hard questions about the interchange fees that are
charged. I am asking my colleagues in the Senate not to give the banks
this overtime, extra-time victory. Give the victory to consumers. They
have precious few on the floor of the Senate. Stand up for small
businesses that do create jobs across America, and give them a chance
to create jobs in this country by not being overcharged by the credit
card networks and the biggest banks in America.
How many of us have come to the floor and said small business is the
key to economic recovery? If you believe it, if you mean it, vote
against the Tester-Corker amendment. That amendment is a blow to small
and large businesses alike, large retailers and merchants alike, all
across America. They stand in support of my effort to have a reasonable
interchange fee on debit card transactions and to make sure they have a
fighting chance to be profitable, to expand their businesses, and to
hire more employees. That would be good for economic recovery. A vote
for the Tester-Corker amendment unfortunately would be a win for the
banks at the expense of an economy that desperately needs our help and
support today.
I yield the floor.
____________________