[Congressional Record (Bound Edition), Volume 156 (2010), Part 8]
[Senate]
[Pages 10438-10441]
[From the U.S. Government Publishing Office, www.gpo.gov]




                               SWIPE FEES

  Mr. DURBIN. Mr. President, 2 weeks ago, we considered the Wall Street 
reform bill, and the occupant of the chair was a key player in the 
activities of the Banking Committee that led up to the floor 
consideration.

[[Page 10439]]

  I offered an amendment during the course of that debate on the Wall 
Street reform bill. I knew that the basic reason for Wall Street reform 
was twofold: holding big banks accountable for how they operate and 
empowering consumers to make good financial choices.
  The bill Senator Dodd and the committee brought to the floor was a 
strong one. In the process of taking up and voting on amendments, in 
many ways the Senate made the bill even stronger. Now a conference with 
the House is underway, and I look forward to seeing the best Wall 
Street reform bill possible signed into law by President Obama.
  During the course of that debate, I offered an amendment to the bill 
that attracted a lot of attention--more than I anticipated. My 
amendment sought to give small businesses and merchants and their 
customers across America a real chance in the fight against the 
outrageously high swipe fees charged by Visa and MasterCard credit card 
companies.
  Nearly $50 billion in credit and debit card interchange fees are 
collected each year, and this interchange system is entirely 
unregulated.
  To explain the process, if I go to my favorite restaurant in Chicago 
tomorrow night with my wife and receive my bill and hand over my credit 
card to that restaurant--and let's say the bill is for $100--the credit 
card company will honor the bill, pay it to the restaurant, but then 
charge the restaurant as much as 3 percent of the bill for the use of 
my credit card, and that is known as a swipe or interchange fee.
  You might say, well, doesn't the restaurant negotiate with the credit 
card company about whether it is 3 percent, 2 percent, or 1 percent? 
The answer is no. Those fees are dictated by the credit card companies. 
Merchants and businesses have little power in even challenging, let 
alone changing, the so-called interchange and swipe fees.
  Other than my credit card, I could present something known as a debit 
card, which more and more people use every day. A debit card, instead 
of allowing the Visa company to pay my bill, and then I pay them, 
actually would deduct the money from my checking account, so the money 
moves directly from my bank through to the bank of the restaurant to 
pay the bill.
  In that situation, the credit card company is not on the hook very 
much because the money is moved directly from the checking account to 
the account of the restaurant. It is not a question of whether I pay my 
monthly bill or whether I pay the interest on that bill; there is very 
little risk associated with the so-called debit card.
  Yet what we are finding is that the credit card companies are 
charging the same fees for debit cards they are charging for credit 
cards. Merchants and businesses across America say there is not as much 
risk associated with them, so why are they charging more? That is the 
basic mechanism that I approached with my amendment, which was adopted 
on the floor with 64 Senators voting in favor.
  Visa and MasterCard dominate the credit and debit card industry in 
America. They establish the interchange rates that all merchants--and 
by extension, their customers--pay to banks whenever a card is swiped 
or used. There is no one watching out in the process for businesses and 
consumers. There is no agency of government with the authority to 
ensure that these fees charged by the credit card companies are 
reasonable. Visa and MasterCard just set the fees as they see fit and 
tell the merchants to take it or leave it. But how easy would it be to 
run a restaurant or major business in America today if you didn't 
accept credit and debit cards?
  Visa and MasterCard envision an American economy where ultimately all 
sales are conducted electronically across their networks, where they 
and the card-issuing banks receive a cut of every sale and transaction 
in America.
  It is no surprise they want as big a cut as possible. They want to 
maximize their profits. Right now, they have the market power to make 
that happen. They can raise their fees whenever they want.
  Who ends up paying the highest interchange fees charged by these 
credit card companies such as Visa and MasterCard? Small businesses. 
Many of them are literally driven out of business by these high fees 
they cannot control and cannot negotiate. They don't have the market 
power to do it. Those who stay in business have to raise the prices on 
customers to pay the fees.
  My amendment requires debit card fees to be reasonable, and it cleans 
up some of the worst abuses by Visa and MasterCard.
  Yesterday, we had a hearing in the Senate Judiciary Committee and 
present was an Under Secretary in the Department of Justice, Christine 
Varney. She is in charge of the antitrust section. I asked her whether 
the recent reports that had been published in many newspapers across 
America that the major credit card companies are being investigated by 
the antitrust division were true. She said she could not comment on the 
case other than to say they have verified the fact that an antitrust 
investigation is underway against Visa and MasterCard.
  I applaud that. I understand why she could not go into detail. I 
applaud that investigation. These major credit card companies have 
become so big and powerful and coordinate their activities so much that 
I think such an investigation is long overdue.
  My amendment requires that debit card fees be reasonable, and it 
cleans up some of the worst abuses. The amendment was adopted with 64 
Senators voting in favor, including 17 Republicans. It was a major 
victory for small business and merchants and consumers across America. 
It will help small businesses grow and create jobs, which we definitely 
need in this economy, and it will put us back on sound economic 
footing. It will help American families, each of whom pays an estimated 
$427 a year, to subsidize this $50 billion interchange fee system for 
Visa and MasterCard.
  I thank each of my colleagues who joined me in that vote, including 
the Presiding Officer.
  I know my amendment has earned me the wrath of Wall Street, the wrath 
of the big banks, and the wrath of Visa and MasterCard. Even before the 
last votes were counted on my amendment, Visa and MasterCard and 
lobbyists for the big banks were already plotting a way to kill this 
amendment. Financial industry lobbyists are swarming the Halls of 
Congress as we speak. You can hear the stampede of the Gucci loafers 
around every corner. They are arguing that reducing debit card 
interchange fees to a reasonable level, as my amendment would require, 
is unacceptable. In their view, there is absolutely nothing wrong with 
charging unreasonably high fees in a business where there is virtually 
no competition.
  I urge my colleagues to consider the enormous benefits of the 
amendment that was adopted. Our language will help every single Main 
Street business that accepts debit cards keep more of their money, 
which is a savings they can pass on to their consumers. Every grocery 
store, convenience store, flower shop, and every restaurant will be 
able to reduce the fees they paid to the big banks for debit card 
transactions.
  This is a real boost for that industry and, believe me, they know it. 
They are fighting hard to convince Members of the House now that what 
we did in the Senate is the right thing for small business across 
America. It has led the Merchants Payments Coalition, this group that 
came together in support of my amendment--2.7 million merchants, 
representing 50 million American employees--to endorse this bill--the 
overall bill--and to work for its passage because of this amendment.
  It is not just businesses that benefit from the amendment. Charities 
will benefit. Think about that. Charities that accept donations by 
debit cards will see a savings. Universities will save money on card 
fees, and so will public agencies, such as your local motor vehicle 
commission in your home State, public transit agencies, and even the 
U.S. Postal Service.
  Also, under my amendment fewer taxpayer dollars will be spent by 
local, State, and Federal Government agencies for the payment of these 
interchange fees.

[[Page 10440]]

  I am going to hold a hearing next week in my appropriations 
subcommittee about the amount of money paid by American taxpayers each 
year to Visa and MasterCard for interchange fees. It is an enormous 
amount of money. It is an amount that I think is unwarranted because, 
basically, the Federal Government is going to pay these bills. No 
question about it. Yet some of the interchange fees charged to our 
government are much higher than the fees charged to businesses.
  Last year, the city of Chicago paid $7.5 million in interchange fees. 
The Illinois Tollway authority paid $11.6 million in interchange fees. 
Our cities' transit agencies and units of government could put this 
money to better use than paying Visa and MasterCard.
  Next week, this hearing will bring out the amount of money paid by 
the Federal Government. Consumers will benefit from the amendment as 
well. Debit interchange fee reductions will lead to lower consumer 
prices at grocery stores, convenience stores, and other retailers that, 
unlike Visa and MasterCard, have to vigorously compete with one another 
on price. They will have an incentive to pass the savings on to their 
consumers.
  My amendment explicitly allows merchants to provide discounts when a 
customer pays by cash, check, or debit, instead of credit.
  I told a story on the Senate floor before, and I think it illustrates 
perfectly what we are up against. When you go to the airport to leave 
town, there are places where you can buy magazines, newspapers, chewing 
gum, and the like. I was standing in line at a register while somebody 
in front of me took a package of chewing gum, put it on the counter, 
and handed over a credit card.
  I noticed as she rang up the $1.50--whatever it was--and started 
running the credit card through that the cashier was doing this 
routinely. I asked her afterward, when I was next up: Is that the 
lowest amount anyone put on a credit card while you have worked here?
  She said: No. Thirty-five cents is the lowest amount.
  I guarantee that merchant lost business, probably on the $1.50, 
certainly on the 35 cents, because they have to pay the credit card 
company regardless of the amount of the purchase, and the credit card 
company forbids, prohibits the merchant, the business from saying: You 
can't use a credit card for something, for example, that is under $5. 
They cannot do it.
  What we are trying to do is create some sense where we do not 
penalize merchants and small businesses. I know Visa and MasterCard are 
throwing a lot of money into their campaign against my amendment. It is 
one of the most fiercely lobbied provisions I have seen since I have 
served in the Congress. I have heard their arguments, and they just do 
not hold water.
  They argue that there have been no hearings in Congress on the issue 
of interchange fees prior to my amendment. Actually, in the last 5 
years, there have been six congressional hearings specifically on 
interchange fees, plus two reports from the General Accountability 
Office.
  The second myth they have been pushing is that my amendment will hurt 
small banks and credit unions. Mr. President, we discussed this after 
the amendment passed, when you were on the floor. As a result of my 
amendment, which I changed at the last moment, it says that any 
institution issuing a credit card with less than $10 billion in assets 
is not covered by the provisions of my amendment--$10 billion. That 
means that out of 8,000 credit unions across America, exactly 3 would 
be governed by my amendment. Yet the credit union industry and all of 
their representatives are roaming all over Capitol Hill saying: This is 
going to kill us. In fact, they are specifically exempted from this 
amendment.
  When it comes to banks, the $10 billion asset threshold would mean 
that out of about 8,000 banks in America, only about 90 will end up 
being covered by this amendment.
  You say to yourself: Durbin, why did you go through all this trouble 
for 90 banks and 3 credit unions? It turns out that these 90 banks and 
3 credit unions do 65 percent of the credit card business in America. 
The big boys are the ones who will be touched by this amendment, as 
they should be.
  I heard this line from the Independent Community Bankers of America 
and the Credit Union National Association, that they are the ones who 
are going to be hurt. Three credit unions, 80 banks, or 90 at the most, 
will be affected by it.
  I just sent a letter to these organizations telling them what I have 
been telling small banks and credit unions in my home State of 
Illinois--that my amendment will not disadvantage them. In fact, we 
went to great lengths to protect them. We exempt 99 percent of the 
banks and 99 percent of the credit unions.
  Visa and MasterCard cannot come here and lobby and expect anybody to 
believe them because we know what credit card companies do to you. They 
do not have a lot of friends on Capitol Hill. The big banks, the ones 
that issue the credit cards, cannot come around either, basically 
because the Wall Street reform bill was focused on these banks and some 
of their nefarious activities, at least questionable activities. Whom 
do they have fronting for their arguments? The little credit unions 
that come in and say this is going to be terrible. What they do not 
tell Members of Congress is that the Durbin amendment specifically 
exempts them from any coverage of this amendment.
  My amendment does not allow merchants to discriminate against cards 
issued by small banks or credit unions. That is another argument they 
make: If the Durbin amendment goes through, a lot of businesses and 
restaurants will not take the credit cards issued by the small 
institutions. There are specific provisions now that prohibit 
discrimination against the issuer of the credit card. Those are not 
changed by the Durbin amendment.
  Credit unions fear the card networks will reduce their fees if this 
provision is enacted. Imagine--think this through. Since the Durbin 
amendment will not change the fees small banks issuing credit cards 
will receive, they are afraid that out of spite Visa and MasterCard 
will unilaterally cut their fees. I have news for them: Visa and 
MasterCard can do that today even without the Durbin amendment. They 
have the power to dictate these interchange fees to small banks and 
credit unions alike. That is what is fundamentally unfair, and that is 
the situation facing merchants and businesses across America today.
  I hear small banks say that even though the Durbin amendment reduces 
the interchange fee rates, Visa and MasterCard are threatening that if 
the amendment becomes law, they are going to go ahead and reduce the 
rates they set for small banks. That is certainly in their power today, 
but it is certainly against the economic interests of Visa and 
MasterCard.
  Small banks have to understand--credit unions as well--that Visa and 
MasterCard want more credit cards out there, more people using them. 
Discouraging the use of credit cards is certainly not in their business 
model. Visa and MasterCard only get paid if the card is actually swiped 
or the interchange fee is charged. They would lose that revenue if they 
cut small bank interchange fees so much so that the banks would stop 
issuing credit cards.
  The only reason Visa and MasterCard might decide to reduce small bank 
debit interchange rates is if the big banks told Visa and MasterCard 
not to let the small banks get more interchange revenue than they do. 
Big banks hate the thought of small banks getting higher interchange 
rates because the small banks could use that money to eat into the big 
banks' share of the debit card issuer market.
  Many have long suspected that Visa and MasterCard operate primarily 
to serve the big banks. We are certainly going to find out.
  I say to those who have come to lobby me for over 25 years from the 
credit union industry, I am really troubled by the pattern of conduct I 
have seen on this legislation. I saw it before when we were dealing 
with the issues of bankruptcy and foreclosure, when we specifically 
exempted the credit unions, and yet they refused to break

[[Page 10441]]

from the biggest bankers--the American Bankers Association--in their 
position on this issue. We are seeing it again today. We specifically 
exempt all but three credit unions, and the credit unions are doing the 
bidding of the big banks and the credit card companies.
  I think of the origin of credit unions, which came to be when people 
across America decided they wanted to have a fighting chance against 
banks, that they would come together, pool their savings, and loan to 
one another with reasonable interest rates. We rewarded this credit 
union model by saying we would not consider them for-profit banks. We 
would exempt them from certain Federal taxation because they were 
different--different in their goals, different in their principles, 
different in their business models.
  But the more I watch them on issue after issue, there is not a dime's 
worth of difference between the big banks and the credit unions when it 
comes down to the really tough issues. As soon as the big banks snap, 
the Credit Union Association jumps. That is what is going on here. It 
is unfair to those who honor the credit union movement and what it 
stands for, and it is unfair that their leaders do not have at least 
the vision to understand that this kind of approach is at the long-term 
expense of the reputation of a fine association which has served so 
many millions of Americans, including my family, for a generation.
  The banks also argue that because my amendment requires debit fees to 
be reasonable and proportional to the cost of processing a transaction, 
they will not be able to cover the possible risk of fraud. That is a 
pretty bold argument for them to make.
  Visa, MasterCard, and the banks for years have been urging consumers 
to use payment methods that run higher fraud rates. On April 21, an 
article ran in the American Banker entitled ``Counterintuitive Pitch 
for Higher-Fee Debit Category.'' The article discusses how JPMorgan 
Chase, one of the Nation's largest debit card issuers, has urged all 
its customers to sign for its debit transactions rather than enter a 
PIN number. As the article points out, entering a PIN number greatly 
reduces the risk of fraud. The reason JPMorgan Chase urged its 
cardholders to use signature debit cards is the interchange fees for 
signature cards are higher. They make more money when you sign than 
when you use a PIN number. They are willing to absorb the possibility 
of fraud in a signature rather than in a PIN number, which is more 
secure. The banks do not appear to be nearly as concerned about lower 
fraud as they are about higher fees.
  Visa, MasterCard, and the banks have also been blocking the 
introduction of fraud-proof card technology in the United States, again 
because they want to keep interchange rates high. For example, many 
countries have chip and PIN cards where a card has a microchip that can 
only be activated by the use of a PIN number. The banks and card 
companies in this country have stifled that technology.
  When debit fraud does happen today, the big banks usually try to 
charge back the fraud loss to the merchants on the grounds that the 
merchants somehow violated Visa's and MasterCard's operating rules.
  As long as big banks are guaranteed the same interchange revenue no 
matter how much or how little fraud they have, the banks have no 
incentive to keep fraud costs low. My amendment will give big banks a 
real incentive to reduce fraud.
  Finally, I hear the banks argue that by reducing debit interchange 
fees, my amendment would force the banks and card companies to raise 
fees on customers. I try not to laugh when I hear this one because when 
were the banks and card companies not raising fees on their customers? 
Didn't we just see them fall all over themselves to gouge cardholders 
before last year's Credit CARD Act took effect? I cannot tell you how 
many letters I received in the mail during the grace period before the 
law went into effect announcing higher interest rates on the credit 
cards my family uses. It is not as if banks and card companies were 
reducing fees to cardholders as interchange rates were being hiked over 
the last few years. Rather, they ratcheted up fees on both the 
cardholder side and on the merchant side. They try to take advantage of 
both sides whenever they can.
  We need to ensure that this system works fairly both for consumers 
and for small businesses. And last year's Credit CARD Act and my 
amendment will work together to do so.
  In conclusion, I call on my colleagues to stand up for the merchants 
and small businesses across America, to push this amendment across the 
finish line in the conference committee on Wall Street reform. This 
amendment represents one of the biggest wins for small businesses and 
consumers in years. It will help small businesses grow and create more 
jobs. Do not let the Wall Street lobbyists and the friends of the 
credit unions who are working for them fool you. This is all about big 
bank profits. Do not let them kill this amendment. Do not let them 
bring down this broad, bipartisan effort to give small businesses a 
fighting chance against Visa and MasterCard.
  Mr. President, I yield the floor. I see my colleague from North 
Dakota is with us.
  The PRESIDING OFFICER. The Senator from North Dakota.

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