[Congressional Record Volume 157, Number 146 (Monday, October 3, 2011)]
[Senate]
[Pages S6018-S6019]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                            DEBIT CARD FEES

  Mr. DURBIN. Mr. President, I wish to take those who are following 
this debate on a little trip through the world of plastic. I am talking 
about the world of credit cards--in this case, specifically about debit 
cards--because something happened over the weekend which has changed 
that world dramatically, and it is important for consumers, retailers, 
and voters across America to understand what happened.
  On October 1--on Saturday--the rules on how much a credit card 
company and a bank that issues a debit card can collect every time we 
use the debit card changed. They call it the swipe fee. It makes sense: 
We hand them the credit card or we do it ourselves, swipe it through 
the machine, and we pay for a transaction. Back in the old days, which 
I can recall, some people would write out a check. This is the new form 
of a check. It is a debit card. When we swipe it through the machine 
and the machine accepts it, the money comes right out of our checking 
account to the retailer where we did the business. It is very 
convenient. People are using it more and more. In fact, over half the 
transactions at most retailers now are done with either credit or debit 
cards. What the consumer doesn't know is there is a charge each time 
that card is swiped. It is called the swipe fee or the interchange fee. 
What is it? It is established by the two, basically, duopoly credit 
card companies--Visa and MasterCard. They run the whole show. They have 
been under antitrust investigation in the past, and I am sure they will 
be in the future. They set the rules, and here are what the rules are.
  If someone runs a restaurant or, let's say, a grocery store in Near 
North Side Chicago, such as Art Potash's, who is a close friend of 
mine--a family-owned grocery store--they say: I have to take plastic to 
do business, then Visa and MasterCard say they have to pay each time a 
customer swipes that card. How much do they pay? It is a secret. 
Basically, consumers don't know, but individual retailers do, and the 
individual retailers have little or no bargaining power with Visa, 
MasterCard, and the big banks, as one can imagine.
  So we passed a law over 1 year ago--an amendment that I offered to 
the Dodd-Frank Wall Street Reform Act--which said to the Federal 
Reserve Board: Investigate this. Find out how much it actually costs 
the bank and credit card companies to process a transaction with a 
debit card. They came back, after a long study, and they said: If it 
uses a PIN number, which some do, it is about 4 cents. If we sign it, 
it is about 7 to 12 cents. Then they said: Incidentally, the average 
charge by the credit card company and bank for each swipe fee is 44 
cents--dramatically larger than the cost of the transaction to the bank 
or the credit card company.
  Remember, in the old days, when we processed checks? It cost pennies 
to process a check no matter what the face amount was. But now, 
retailers face the 44-cent average swipe fee every time somebody uses a 
debit card. So we can understand some retailers don't like this much. 
There is no competition. These banks and credit card companies tell 
them this is it, take it or leave it; if they don't like it, don't use 
plastic. It is secret. Nobody knows it except the retailer, the bank, 
and the credit card company. It is a hidden fee, and it is a killer for 
a lot of small businesses.
  I was in Rock Island, IL, and Carl, who is the manager of the Rock 
Island Country Market, said: We have a special deal here, Senator. 
People can come in from the neighborhood in Rock Island, IL, in the 
morning, and I give them a cup of coffee and a doughnut for 99 cents. 
It is a pretty good deal in this day and age. It sure is, isn't it, 
compared to what we pay. He said: I want to get them in the store. But, 
he said, you know what. They turn around and use plastic at the cash 
register. I wasn't even breaking even at 99 cents, and now I am paying 
44 cents to some bank and credit card company because people have used 
plastic.
  That world changed October 1--last Saturday. The new law went into 
effect where the Federal Reserve established the ceiling--the maximum--
that can be charged for a debit card swipe fee that is issued by the 
largest banks in America. The maximum now comes down to about 24 cents. 
Is this a big deal? It certainly is, because each year in the economy, 
swipe fees accounted for about $10 billion or $12 billion--$10 billion 
or $12 billion--in additional charges to consumers and loss of 
profitability by businesses. One can imagine, $10 billion or $12 
billion, even after it has been discounted by the Federal Reserve to 
about half that amount--$5 billion or $6 billion--has the banks in an 
uproar.
  I guess it is a great honor that the Wall Street Journal on Friday 
had one of their people they invited in to comment who said this new 
bank fee that is being charged by Bank of America on debit cards is the 
Durbin fee--the Durbin fee. The same thing was said by the Chicago 
Tribune on Saturday.
  Let me say at the outset I am honored to be associated with an effort 
to reduce costs to retailers and consumers across America. What we are 
doing is fair--trying to strike some balance in an industry that has 
shown little or no balance. One of the worst offenders in this is Bank 
of America--the largest bank in the United States.
  Did you see what they did last week? They announced that anybody who 
had a debit card at Bank of America was now going to be subject to a $5 
monthly fee because of this reform. What I have said in the media, and 
I will say here, is: Bank of America customers, vote with your feet. 
Get the heck out of that bank. Find yourself a bank or credit union 
that will not gouge you $5 a month and still will give you a debit card 
you can use every single day.
  What Bank of America has done is an outrage. Last week, when they 
announced they were charging their own customers a $5 monthly fee for 
the use of the debit card, they went overboard. They are overcharging 
their customers even for this new debit card reform,

[[Page S6019]]

but it is nothing new in the history of Bank of America. Consumers 
across America and the customers of Bank of America are rightfully 
outraged. It is hard to believe a bank would impose such a fee on loyal 
customers who simply are trying to access their own money on deposit at 
Bank of America, especially when Bank of America, for years, has been 
encouraging their customers to use debit cards as much as possible.

  It is particularly hard to believe this fee would come from a bank 
with a track record such as Bank of America's. After helping to drive 
our economy off the cliff's edge in 2008, Bank of America was happy to 
accept a $45 billion Federal bailout for their stupidity, their greed, 
and their mistakes. It was just as happy to take that money and hand 
out $3.3 billion in employee bonuses in the same year--2008. Don't 
forget the track record of Bank of America when it comes to handling 
mortgages. They picked up this company--Countrywide--which had issued 
mortgages all across America that were going bad. The record of Bank of 
America, when it comes to processing these same mortgages, is equally 
disappointing. When it is not losing paperwork or refusing to answer 
the phone, Bank of America is foreclosing on American families right 
and left.
  But at least this time Bank of America is being open about the new 
charge to its loyal customers. In contrast to the overdraft fees, 
research fees, swipe fees, and other hidden fees they have charged, 
this time Bank of America is being up front about sticking it to its 
own customers. Transparency is a good thing. It allows customers, as I 
said, to vote with their feet. Not every bank treats its customers like 
Bank of America, and consumers can decide whether Bank of America's 
values reflect their own.
  Bank of America is the largest bank in terms of assets in the United 
States. Now it is crying poverty, saying it is forced to hit their 
debit cardholders with this new monthly fee because Congress passed 
swipe fee reform. I don't buy it. Here is the reality: Bank of America 
and banks in general are still making billions of dollars with this new 
reform in the law of credit and debit card swipe fees. Swipe fees are 
an estimated $50 billion per year money maker for the banking 
industry--$50 billion. Bank of America alone makes billions from swipe 
fees each year. But Bank of America didn't earn those fees by 
competition. Instead, Bank of America receives these billions because 
Visa and MasterCard, this duopoly that runs the credit card business in 
America, basically fixed these prices and retailers and consumers have 
no voice in the process. This price-fixing has immunized the swipe fee 
revenue stream from competition. Now that Bank of America is out in the 
open with this overcharge of their own customers, it is time for real 
competition to step in. The Federal Reserve found it cost the bank, on 
average, 7 cents to conduct a debit transaction--a signature 
transaction. It costs a lot less, I am sure, for Bank of America, with 
its economies of scale. But the Fed also found Bank of America was 
getting an average of 44 cents, instead of 7 cents. They simply can't 
make that type of enormous profit margin--nearly 600 percent--in a 
transparent and competitive market. In a free and fair market, these 
profits would be competed down to a reasonable level. Without 
competition, credit card companies--these banks such as Bank of 
America--will continue to win, and consumers and retailers--and, of 
course, now the Bank of America's own customers--will lose.
  Today, I have written a letter to the CEO of Bank of America. His 
name is Brian Moynihan. I told him it wasn't just me alone but others 
have done a little calculation on his $5 monthly fee. Do you know what 
we found out? When they thought the swipe fee was going to be limited 
to 12 cents, Bank of America said: That will cost us $2 billion a year. 
Turns out the Federal Reserve said: No, it will be 24 cents. So by our 
estimates, this new reform of the swipe fee may cost--may cost--Bank of 
America $1 billion a year in revenue. Guess what. If we do the 
calculation of $5 a month on the number of reported debit cardholders 
at Bank of America, they will bring back twice as much as their 
projected loss on this new law. They are overcharging their own 
customers, once again, twice as much as they should if they just want 
to cover the hidden fees they had in the past.
  That is unfair to consumers, it is unfair to the customers, and it is 
unfair to do it in this tough economy, when a lot of Bank of America's 
customers across America are struggling to get by. What I am basically 
calling on Mr. Moynihan to do is to justify this $5 monthly fee based 
on their projected debit card transaction losses and the number of 
people they have holding debit cards by their company.
  I didn't come up with this alone. A gentleman by the name of Lazarus, 
who is a business reporter in California, was the first one who called 
it to my attention on the ``Lehrer Report'' on Friday night. We have 
looked into it further, and it is clear, again--again--that Bank of 
America is overcharging its own customers. I can tell you it isn't the 
first time. Most people are aware of the fact Bank of America was sued 
for overcharging for various fees, such as overdraft fees, in the past. 
Because of that suit and the possibility of losing it, they entered 
into a settlement to pay over $400 million for overcharging their own 
customers. They are doing it again. Bank of America, with this monthly 
fee, is overcharging its customers again by any reasonable standard for 
a loss of revenue based on this new law.
  The last point I wish to make is this--because I see some on the 
floor, including a Senator or two who may have a different point of 
view. When I was back in Illinois, I stood with the retailers, and I 
hope the retailers of Tennessee and Utah will be in touch with my 
colleagues and let us hear their side of the story. They have been 
victimized by these banks and credit card companies for too long. What 
we do with this law is establish a reasonable standard of compensation 
and now some disclosure about what is being charged for transactions.
  I wish to help small businesses--and large retailers too, for that 
matter--across America. Their profitability, the success of their 
business, means more Americans go to work. If a Senator wishes to stand 
on the floor of the Senate and defend the Wall Street banks, such as 
Bank of America, and the credit card companies, be my guest. I would 
rather stand with the consumers and retailers that have been taken to 
the cleaners for years and years by these swipe fees.
  The latest outrage by the Bank of America is a reminder that when it 
comes to valuing customers, those banks that don't gouge those 
customers, that don't overcharge for debt fees, are the ones that 
deserve America's business.
  Mr. President, I yield the floor.
  The ACTING PRESIDENT pro tempore. The Senator from Tennessee.

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