[Congressional Record Volume 157, Number 164 (Monday, October 31, 2011)]
[Senate]
[Pages S6903-S6904]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
SWIPE FEE REFORM
Mr. DURBIN. Mr. President, we are at a significant moment in the
relationship between the banking industry on Wall Street and businesses
and consumers on Main Street all across America. This could be, in the
words of Malcolm Gladwell, a ``tipping point,'' and it could lead to a
much more balanced relationship in the future.
It is interesting how we reached this point. There was a time not
that long ago when Wall Street and Main Street both played by the same
rules. Banks and businesses sold goods and services to consumers in a
competitive market environment with transparent prices. Banks performed
and still perform a valuable function in our economy, providing capital
and liquidity. Businesses, of course, in the sale of goods and services
are generating the activity that fuels our economy. They were
complementary. They worked with one another.
The successful banks and businesses were the ones that were more
efficient than their competitors. They offered better products, better
prices. This system, characterized by transparency, competition, and
choice worked well for everyone: consumers, banks, businesses, all
their customers. It was the basis for a free market economy and a great
nation.
In recent years, and particularly after the repeal of Glass-Steagall,
though, things changed. Banks started moving to a new role beyond
capital and liquidity. The level of profitability and the activities of
the banks started moving in many different directions. Instead of
practicing transparency and competition, many banks started cutting
corners, imposing fees, raising interest rates, and basically creating
policies that were very difficult for even their most loyal customers
to follow. That was a situation which had gotten out of hand.
We saw hidden fees pop up left and right, such as overdraft fees on
checking accounts that went completely beyond any reasonable penalty
for a person who is guilty of that conduct, and sudden interest rate
changes on credit cards. Consumers many times did not even know they
were being charged the fees until it was too late, and the banks
figured if all the banks did it consumers would have no choice. They
had to live with it.
Perhaps no fee better characterized the absence of transparency and
competition than the interchange fee, or the swipe fee. This is a fee
that banks receive from merchants and retailers each time a person uses
a debit card or a credit card. It is a fee unlike any other. With most
fees we see one fee rate charged by one bank, such as Bank of America,
another rate by another bank, Wells Fargo or Chase or whatever it
happens to be. But with interchange fees, all banks receive the same
fee rate. There is no competition.
The banks realized that competition holds fee rates down. So they
went to Visa and MasterCard--and on debit cards Visa has around 80
percent of the debit card business--and said to them: You can set, you
can dictate the interchange fees the banks will collect. And they did.
This duopoly, these two major credit card giants, Visa and
MasterCard, set fees for all of the banks issuing their cards across
America. This has been a huge moneymaker for the banks. Banks make an
estimated $50 billion a year in debit and credit card interchange fees,
and because there is no competition and no negotiation with the
retailers Visa and MasterCard reward their big bank allies with higher
fee rates every single year, even as the cost of processing these
transactions continues to go down.
Swipe fees have become a huge and growing burden for Main Street
businesses and customers, and American families ultimately pay the
price in the form of higher costs for groceries and gasoline.
I think of Potash Supermarket. I have talked about it on the Senate
floor many times. Art Potash has become a buddy of mine, second or
third generation owning this supermarket near North Chicago. He is not
as big as the big boys, Dominicks, Jewel, and the others, but, boy,
what a nice store he has.
Art came to me years ago and said: They are killing me. The debit
card sweep fees are killing me. It is the second or third most
expensive item when I put together the cost of my business, and it is
out of control. I have no control over it.
Art was one of the people, he and Rich Neimann down at Quincy, IL,
retailers, businessmen who got me started on this. Well, it is
interesting. Something is happening out there in America. It could be
that the era of some of these banking practices is coming to an end.
Maybe we are reaching a tipping point.
In 2009, Congress passed credit card reform that reined in sudden
interest rate changes, and regulators placed curbs on abusive overdraft
fees. Of course, the credit card companies and the banks screamed
bloody murder: Too much government. Too much regulation.
We did not listen to them. We listened to American families and
consumers. Last year, Congress passed a Wall Street reform bill, and we
created a new Consumer Financial Protection Bureau and placed
reasonable limits on Visa and MasterCard swipe fee price fixing. No
surprise. The banks cried bloody murder. They do not want to make a
penny less than they made in the last quarter, even if their past
profits were inflated by hidden fees and anticompetitive practices.
So now big banks are looking for new ways to squeeze their customers
in order to maintain their record profits and ten-figure executive
bonuses. But in the past week, something interesting has happened in
America. After years of raising fees on the customers without much
resistance, several of the biggest banks tried to stick it to their
customers again with a new monthly debit card fee. The consumers of
America noticed, stood up, and said: No way.
After Bank of America, Wells Fargo, and several other big banks
announced these new debit fees, their customers began voting with their
feet. New account openings at credit unions and community banks surged
in many cases by 20 to 50 percent.
I am sure that is good news to my colleague from Iowa to know that
there is more business at the community banks and credit unions of
Iowa, leaving the Wall Street banks and coming home to Iowa. It is good
news in Illinois.
Consumers have been emboldened. They are now saying they will only do
business with banks that care about serving them instead of squeezing
them. This has been a great development for consumers. It has also been
great for those small banks and credit unions which we value so much in
the Midwest who have never stopped playing by the rules and have always
valued their customers and their communities.
Now, November 5 is coming. It turns out to be a day I was not
previously
[[Page S6904]]
aware of but I have read about now. They are calling it the National
Bank Transfer Day. We are seeing many big banks actually reversing
themselves and abandoning their recently announced debit fees in light
of the possibility that even more people are going to shift away from
the big banks with the monthly debit card fees to community banks and
credit unions and other banks that are not imposing the fees.
Big banks are starting to see it just is not good business to nickel
and dime their customers and charge them five bucks a month for access
to their own checking account. That is what they were doing. At least
that is what they were proposing.
Can you imagine the big banks ever changing course like this a few
years ago? Not a chance. But through reasonable regulation and
consumers standing up and being alert, we are restoring transparency
and competition to financial services.
Transparency and competition are part of a good, functioning, free
market economy. It is not over by a long shot. The big banks still have
enormous power and resources. They are going to continue to try to find
ways to make money at the expense of their customers, and that is why
we need to do several things.
First, we need to confirm once and for all a Director for the
Consumer Financial Protection Bureau. I know Wall Street banks and
financial institutions and many on the other side of the aisle hate
this new Bureau, as Dale Bumpers used to say, like the Devil hates holy
water. But the fact is, this is an agency solely dedicated to ensuring
that consumers have good information so they can make good choices.
Senate Republicans should lift their hold on Richard Cordray so he can
be confirmed to run this important agency. They should stop doing the
bidding of the financial institutions who are afraid of oversight and
stand on the side of families and small businesses across America.
Second, we need to ensure transparency of all bank fees so consumers
cannot be tricked and trapped. This is the role the CFPB will
eventually play. But there is no need for banks to wait to provide this
transparency. For example, the Pew Charitable Trusts has developed an
easy-to-read, one-page model disclosure for banks to list all of the
fees they can charge on checking accounts. Banks should immediately
adopt this Pew Trust disclosure box so their Web sites are clear to
consumers and consumers can actually comparison shop and choose the
bank that best serves their needs. This type of standardized fee
transparency will help drive consumer business to the good banks, those
that play by the rules and offer a good value at a reasonable price.
Third, we have more work to do to bring transparency and competition
to the swipe fee system. For example, credit card swipe fees are still
entirely unregulated, and they can cost a merchant up to 3 to 4 percent
of the transaction amount. Every American should be aware of what it
costs a merchant to accept a credit card because ultimately the
consumers pay for it.
Consumers should particularly be aware of how much their local small
businesses pay in credit card interchange. They should also know how
much more rewards cards cost merchants than nonrewards cards. This will
help consumers make more informed choices.
If we are for competition and for transparency and for choice, we
have to move to a level where consumers have more information. So I
call on the Nation's biggest 1 percent of banks, those with over $10
billion in assets, to disclose in their monthly statements of their
cardholders the interchange fees the banks received on each credit card
transaction.
While it would be ideal for this interchange disclosure to be made
known to customers directly at the cash register or on receipts, I
recognize that might be difficult. So let's do it on the monthly
statement. Big banks can easily modify these monthly statements to show
how much the bank received in interchange fees on each transaction.
This can happen almost immediately.
This type of transparency is particularly important because we are
seeing big banks trying to steer their customers away from paying with
debit and toward credit. Have you noticed the ads that are offering
rebates on credit cards now; 1 percent, 2 percent, even 3 percent on
gasoline? What customers may not realize is that the fee being charged
by the credit card company and the bank to the gas station may be far
in excess of 3 percent. So they have already taken the money away from
consumers as they pay for their gas, and then they toss three pennies
back to them.
It is time for a little more disclosure about the actual relationship
between those banks, credit card companies, and the consumers and
retailers that deal with them.
In closing, I do believe we are at a tipping point when it comes to
the balance between Wall Street and Main Street. For too long Main
Street businesses and consumers have been playing by the rules, and
Wall Street has been rigging the game. Now transparency and competition
are being restored to the banking industry.
A member of my staff was down in Georgia over the weekend. He drove
by and saw a little bank called Bank of the Ozarks. I do not know what
it was doing in Georgia, but it said Bank of the Ozarks. It had a sign
outside that said: We agree. Debit cards should be free.
The word is spreading across America. It is an important word to
which consumers are paying attention. We are seeing dramatic increases
in the Web sites of credit unions and community banks, people
transferring their money to where they think they will get better
treatment and a better deal. It is called competition. Transparency and
competition are coming to the banking industry. Consumers are getting
better information, and many of them are making important choices for
their families and businesses.
This is going to strengthen small banks and credit unions in Iowa, in
Illinois and Connecticut, and many places all around America. It will
help small businesses in Iowa, too, as well as Illinois, who are being
crushed by hidden swipe fees today. It is going to help the economy
move forward in a fair way with real disclosure.
Let's keep this progress moving. I salute those who stood with me on
a bipartisan vote on both occasions on the Senate floor to move forward
on this important matter. Just a few weeks ago, major publications such
as the Wall Street Journal and the Chicago Tribune were jumping all
over the ``Durbin fee,'' and they were standing by the big banks that
said they were going to put this monthly fee on because of Durbin.
Guess what. Those banks are backing off now. They realize their
customers are leaving if they are not treated properly and fairly.
Let's continue that. It is healthy for America and the growth of our
economy.
I yield the floor. I note the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The legislative clerk proceeded to call the roll.
Mr. LEAHY. Mr. President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
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