[Congressional Record (Bound Edition), Volume 156 (2010), Part 8]
[Senate]
[Pages 10800-10802]
[From the U.S. Government Publishing Office, www.gpo.gov]




                            INTERCHANGE FEES

  Mr. DURBIN. Mr. President, I will be brief because I see my friend 
from Iowa is on the floor here. I want to give him a chance to speak.
  The Federal Government pays interchange fees when people use credit 
and debit cards to pay for things such as admission to national parks, 
groceries, at military commissaries, tickets on Amtrak, and copays for 
VA medical services. In fiscal year 2007, our Federal Government paid 
$433 million in credit card fees. The vast majority were interchange 
fees.
  Last year, the Appropriations Subcommittee on Financial Services and 
General Government, which I chair, asked the Treasury Department to 
look into how much money taxpayers are paying to credit card companies 
for the use of credit cards. We got the report this week. It concludes 
that Treasury could save at least $36 to $39 million a year if it did 
several things, such as negotiating the actual interchange rates 
charged to the Federal Government.
  We had a hearing today, and an employee of the Department of the 
Treasury came and testified and said the Federal Government of the 
United States was unable to negotiate an interchange fee with either 
Visa or MasterCard. The card companies refuse to negotiate. There is $8 
billion in economic activity with the Treasury

[[Page 10801]]

through the credit and debit cards of these two companies. But they 
refuse to negotiate with the Federal Government.
  We also learned that one major company, MasterCard, charges an 
interchange fee of 1.55 percent on every government transaction, plus 
10 cents, while the going rate on an interchange fee for supermarkets 
across America is 1.27. It turns out that our Federal Government is 
paying more to the credit card companies than supermarkets are paying 
in Illinois, Iowa, or Alaska.
  You ask yourself: Well, why is that? Is there a high default rate 
from the Federal Government? The answer is no. The Federal Government 
pays. And yet we are being charged a higher rate. But let me say for a 
moment, it is not ``we'' who are being charged a higher rate, it is the 
taxpayers. The taxpayers of this country are subsidizing credit card 
companies by paying higher fees than commercial businesses for the use 
of credit cards.
  It is inexcusable, it is indefensible. You know the debate we had--I 
know, Mr. President, you recall it personally, a few weeks ago--about 
whether these credit card companies are going to be held to charging 
reasonable and proportional amounts for the use of debit cards.
  What we are finding at Amtrak, at the VA, and at commissaries across 
America, is our Federal taxpayers are underwriting these credit card 
companies.
  I tried, when I brought this amendment to the floor of the Senate 
relative to interchange fees, to do everything in my power to preserve 
the ability of small banks and credit unions to compete with big banks 
in issuing debit cards. My amendment does nothing to disadvantage those 
small financial institutions. We specifically exempted any financial 
institution with a value of less than $10 billion. As a result, only 3 
credit unions out of 1,000 in America were covered by my amendment, and 
about 80 or 90 banks out of the 8- or 9,000 in this country.
  I heard from one of my colleagues on the Senate floor today from the 
Midwest, who said: The credit unions were in last week. They are 
frightened by your amendment.
  I said: Are they over $10 billion in value?
  No, not even close.
  Well, the amendment doesn't apply to them.
  They are afraid the big credit card companies, Visa and MasterCard, 
will reduce their interchange fees on small banks and credit unions if 
the Durbin amendment passes in the Wall Street reform bill.
  It is an indication to all of us of the power of these credit card 
companies to terrorize credit unions and community banks. They have 
become the messengers of the big banks and credit cards to kill the 
amendment we passed in the Senate.
  By exempting 99 percent of banks from debit and interchange 
regulation, my amendment would actually enable these banks to receive 
more interchange revenue than their big bank competitors. Yet the so-
called Independent Community Bankers of America and the Credit Union 
National Association oppose the amendment. Why? An article out of 
Reuters came out yesterday that makes it plain.
  The article is titled ``Small Banks Fight Card Fee Limits Despite 
Exemption.'' The article says:

       Small banks believe they have no choice but to support Visa 
     and Mastercard in a battle against lawmakers over fees for 
     processing debit card transactions.

  Why do the small banks believe this? The article continues:

       The Durbin amendment explicitly exempts banks with less 
     than $10 billion of assets, so smaller banks in theory should 
     not oppose the law. But the exemption is cold comfort to 
     small banks, which say that whatever the law stipulates, Visa 
     and Mastercard will force them to accept the same fees as 
     larger banks.

  I want to make it clear what I have said before, last week in a 
meeting of the Senate Judiciary Committee, the Antitrust Division of 
the Department of Justice testified that they are investigating Visa 
and MasterCard now. Nothing more was said, but they confirmed press 
accounts that that is being done.
  I think it is long overdue. This duopoly, this power in the market, 
this ability to terrorize credit unions and small banks is an 
indication of too much power and too little competition. If we truly 
believe in a free market and an entrepreneurial society, we have to 
support competition. In this case, merchants, businessmen, small banks, 
and small credit unions are being terrorized by these powerful 
interests.
  The article quotes Jason Kratovil, vice president of congressional 
relations for the Independent Community Bankers of America, saying that 
``Visa and MasterCard have `probably not directly' told small banks 
that they will receive lower fees,'' but that it is ``pretty clear, at 
least for our guys, that it's going to end up with one rate for all 
issuers.''
  So Visa and MasterCard are arguing: If we have to lower the 
interchange fees for the biggest banks in America, then we will lower 
them for the smallest banks in America--even though they are exempt 
under the Durbin amendment. Visa has 122 different interchange fees and 
MasterCard well over 100. To argue they can't come up with two 
different interchange fees, that it is impossible, is ridiculous.
  It is the kind of thing where these credit unions and small banks 
have been terrorized by Visa and MasterCard. The Independent Community 
Bankers say Visa and MasterCard have ``probably not directly'' 
threatened to voluntarily lower small bank interchange rates, but the 
message received was ``pretty clear.'' It is obvious what is going on: 
Visa and MasterCard are making threats if this amendment becomes law, 
they will use their market power against small banks by voluntarily 
lowering their interchange rates.
  It is a great tactic that scares the small banks and credit unions 
into lobbying against the amendment which passed in the Senate. I am 
sure the big banks couldn't have more fun than to watch the smaller 
banks, exempt under our amendment, do their bidding. The big banks hate 
the thought of my amendment passing, giving small banks an advantage in 
the debit card market. The small banks are just being played like 
marionettes when it comes to their role in this lobbying efforts.
  I sent the CEOs of Visa and MasterCard a letter and told them this: 
My amendment protects small banks, but you are threatening to take 
steps on your own to disadvantage them. If you collude with each other 
or with the big banks to disadvantage small banks, you could run afoul 
of the antitrust laws.
  Visa and MasterCard wrote back yesterday and said: No, Senator, we 
wouldn't want to do anything to hurt small banks, but the market may 
just force us if your amendment becomes law.
  This is ridiculous. With Visa and MasterCard having 100 percent of 
the market for signature debit cards, they are the market. The market 
is going to force them? Guess what. They are the market. They set the 
rules. They fix all the fees now. Small banks and credit unions are so 
afraid of Visa and MasterCard--they are quivering--and their big bank 
allies, they do not believe they can support any regulation of the 
interchange system no matter how reasonable. Small banks are afraid to 
take the risk that these giant corporations might decide to wield their 
enormous market power against them.
  Ironically, that is the world in which small businesses, merchants, 
and other acceptors of payment cards live today. Small businesses have 
no choice today but to accept Visa and MasterCard and the fees and 
rules they establish.
  Today at my hearing, Wendy Chronister of Springfield, IL, my 
hometown, who is CEO of the Qik-n-EZ convenience stores, about 11 of 
them in central Illinois, came and testified. I know her family well. 
They live a few doors away from me. I know her dad who started the 
company 40 years ago. She is a spectacular young woman who is the CEO 
of this small company that has these convenience stores.
  The No. 1 cost in her business is labor, the No. 3 cost is utility 
bills, and the No. 2 cost is interchange fees to Visa and MasterCard. 
They represent

[[Page 10802]]

about half of the charges they pay for labor and represent about twice 
as much as they pay for utility bills. That is how big a factor this is 
in a small business. She has no power to negotiate, no power to 
compete. She is at a loss.
  She was sitting at the table with a representative of the Federal 
Government who said we are in the same boat. We do $8 billion a year 
accepting cards from Visa and MasterCard and cannot get them to 
negotiate with us a lower interchange fee for the sake of taxpayers and 
reducing the deficit. That is the kind of power they have.
  I am going to wrap up because I see Senator Grassley is anxious.
  When I heard this argument today that the Federal Government was 
unable to get Visa and MasterCard to negotiate an interchange fee, they 
are so powerful, these private companies, I had a flashback--a 
flashback to one of my favorite movies of all time. It was released in 
about 1963 or 1964. It is entitled ``Dr. Strangelove.'' In this movie, 
Peter Sellers played three different roles, and one of the roles was as 
a British military officer named Lionel Mandrake. He was at a base 
where they thought another world war was about to break out, a nuclear 
conflict. He was trying to find a telephone to call someone in 
Washington to bring an end to this nuclear war. At that point actor 
Keenan Wynn came in playing the role of COL Bat Guano. Sellers said to 
Colonel Guano: I need change to make a phone call to Washington to stop 
this world war.
  Colonel Guano said: I don't have any change.
  Peter Sellers said: You shoot up with your gun the Coca-Cola machine, 
and I will take the money out and make the phone call.
  He said: You want me to shoot up the Coca-Cola machine. I will do it, 
but you are going to have to answer to Coca-Cola for this.
  That is what I was reminded of today when I heard that our Federal 
Government, with $8 billion in business with Visa and MasterCard, can't 
get them to sit down at the table. That shows the power of these 
private companies.
  What is going on here? This isn't competition. They are not some 
sainted entity. They represent a business, and they are supposed to be 
a competitive business with the other credit card companies. But they 
are not. They are dictating fees to small businesses that are hurting, 
reducing their profitability and their employment at a time when we 
desperately need jobs.
  Small banks should come to understand the predicament that their 
colleagues in the small business community face, as both live in a 
world that is too often run by card networks and big banks. It is time 
for the interchange system to change. We need to end this system where 
Visa and MasterCard have the market power to set fees and establish 
rules however they want.
  I extend my apologies to Senator Grassley. If I had known he had to 
leave, I would have wrapped up a lot earlier and saved my comments 
about ``Dr. Strangelove'' for a later time. I thank him very much. He 
has been a good friend and patient.

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