[Congressional Record (Bound Edition), Volume 157 (2011), Part 3]
[Senate]
[Pages 3733-3737]
[From the U.S. Government Publishing Office, www.gpo.gov]




                         INTERCHANGE FEE REFORM

  Mr. DURBIN. Mr. President, I rise to speak about the issue of 
interchange fee reform. Last year, Congress enacted landmark reform of 
the swipe fees that Visa and MasterCard impose on the debit card 
system. An amendment I offered to Wall Street reform passed the Senate 
with 64 votes--47 Democrats, 17 Republicans--and was later signed into 
law. It was the first amendment out of the first 26 on that bill that 
was held to a 60-vote standard. Every other amendment before was held 
to a simple majority. But I was lucky enough, when I offered the 
amendment, that there was an insistence that we had to reach 60 votes. 
We did it, 47 Democrats and 17 Republicans. It was a great victory, and 
one that came as a surprise to Wall Street, because Main Street--the 
retail merchants, the restaurants, the convenience stores, and many 
others--had worked hard for this amendment.
  Never before had Visa and MasterCard, the duopoly of credit cards, 
and their big bank allies lost a vote such as this in Congress. 
Normally, the credit card companies and the big banks are used to 
getting their way in this town. Visa and MasterCard have such power 
that they control over 75 percent of all credit and debit card 
transactions in America. Last year, $1.39 trillion was transacted on 
Visa and MasterCard debit cards. According to the American Bankers 
Association, the U.S. banking industry is a $13 trillion industry. That 
is trillion with a ``t.''
  Many Members in this body are being lobbied right now by banks and 
card companies to repeal this law, to undo the interchange reform 
Congress passed last year. It is one of the most active lobbying 
efforts I have ever seen.
  I want to explain why interchange reform is so important, not just 
for the concepts of competition and transparency but also for the 
people and businesses affected, for small businesses and consumers and 
the American economy.
  A little background on the debit card industry: Debit cards are 
simply a way for accountholders to access funds stored in an account. 
They are the electronic version of a check.
  Debit cards are issued by banks, such as Bank of America, where the 
account is held. The cards are also part of a card network such as Visa 
or MasterCard, which set certain fees and rules about using their 
cards.
  The banks that issue the debit cards can make money in several ways. 
They make loans based on deposits and earn interest. They charge fees 
to consumers for maintaining and accessing accounts such as ATM, 
monthly, overdraft, and transfer fees. They also receive interchange 
fees from merchants every time one of their debit cards is used.
  If you look at any bank's Web site, you can find the loan interest 
rates and the account fees the bank charges customers. Banks compete 
with one another for this consumer business. That competition keeps 
their fees in check. It is called the free market. But ask any bank to 
show you on their Web site where you can find the interchange fees that 
the bank charges merchants, restaurants, universities, charities, 
convenience stores, ask them what they charge as an interchange fee for 
the use of their debit cards, the bank will say: Well, you will have to 
call Visa or MasterCard.
  Card companies such as Visa fix the interchange fee rates received by 
issuing banks, the banks that have their name on the card next to the 
Visa symbol. In other words, thousands of banks that compete with one 
another in all other aspects of business do not compete with one 
another when it comes to how much in so-called swipe fees or 
interchange fees they get from merchants. The banks let Visa set the 
prices for all of them.
  Visa has decided that every bank that issues Visa cards will get the 
same rate as every other bank, no matter how efficient a bank is, no 
matter how much fraud a bank allows. Rather than

[[Page 3734]]

a competitive system, this is a system which subsidizes inefficiency. 
In fact, the only competition in the interchange system right now is 
the competition between card networks to raise interchange fees. They 
raise the rates in order to get banks to join the network and issue 
more of their cards.
  It is easy to see why banks and card networks set up this system. It 
makes the banks happy because they get billions of dollars a year in 
high fees, and they don't have to worry about competition. It makes the 
networks happy because they get their own network fee each time a card 
is swiped, and high interchange means banks will issue more cards.
  But it is unfair to those who are receiving the cards--for example, 
the restaurants, the merchants, the shops, the book stores, 
universities, charities, convenience stores--because they have no power 
to negotiate this fee. They can't hold off and say: Wait a minute, if 
you want us to take Visa at our store, we want to know how much you are 
going to charge us every time a customer uses a Visa card. There is no 
way to have any conversation on that. Visa establishes what the swipe 
fee will be.
  It is also unfair to consumers, particularly low-income consumers and 
those without banking accounts, who pay billions per year in hidden 
interchange fees that are passed on to them in higher prices for gas 
and groceries. How about that. I had some people in my office today 
talking about the price of gasoline. They said: Understand, every time 
a customer uses a Visa or a MasterCard, they are taking a percentage of 
that cost on the gallon of gasoline. Their percentage keeps going up, 
and in order to have a profit, to keep the lights on, we have to keep 
raising the price of gasoline to keep up with the credit card 
companies, let alone the national oil companies.
  The Federal Reserve estimated that in 2009, about $16.2 billion was 
charged in debit interchange fees, a massive amount of money that is 
being paid to the banks by merchants and their customers, about $1.3 
billion a month. I will get back to that number in a moment. It didn't 
used to be that way in America. It isn't that way in many other 
countries that use Visa and MasterCard.
  Back when the debit card system was started several decades ago, 
debit fees were minimal. It wasn't until Visa entered the market in the 
1990s that we started seeing debit card interchange fees that looked 
like credit card interchange fees.
  They are two different worlds. When I use a credit card, ultimately, 
the bank and credit card company have to collect from me. If I dodge 
them or don't pay, there is a loss. A debit card comes directly out of 
my account. There is no question whether the money is there. It is 
already there.
  There is an excellent New York Times article by Andrew Martin from 
last year titled ``How Visa, Using Card Fees, Dominates a Market.''
  I ask unanimous consent to have that article printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                [From the New York Times, Jan. 5, 2010]

      The Card Game--How Visa, Using Card Fees, Dominates a Market

                           (By Andrew Martin)

       Every day, millions of Americans stand at store checkout 
     counters and make a seemingly random decision: after swiping 
     their debit card, they choose whether to punch in a code, or 
     to sign their name.
       It is a pointless distinction to most consumers, since the 
     price is the same either way. But behind the scenes, billions 
     of dollars are at stake.
       When you sign a debit card receipt at a large retailer, the 
     store pays your bank an average of 75 cents for every $100 
     spent, more than twice as much as when you punch in a four-
     digit code.
       The difference is so large that Costco will not allow you 
     to sign for your debit purchase in its checkout lines. Wal-
     Mart and Home Depot steer customers to use a PIN, the debit 
     card norm outside the United States.
       Despite all this, signature debit cards dominate debit use 
     in this country, accounting for 61 percent of all such 
     transactions, even though PIN debit cards are less expensive 
     and less vulnerable to fraud.
       How this came to be is largely a result of a successful if 
     controversial strategy hatched decades ago by Visa, the 
     dominant payment network for credit and debit cards. It is an 
     approach that has benefited Visa and the nation's banks at 
     the expense of merchants and, some argue, consumers.
       Competition, of course, usually forces prices lower. But 
     for payment networks like Visa and MasterCard, competition in 
     the card business is more about winning over banks that 
     actually issue the cards than consumers who use them. Visa 
     and MasterCard set the fees that merchants must pay the 
     cardholder's bank. And higher fees mean higher profits for 
     banks, even if it means that merchants shift the cost to 
     consumers.
       Seizing on this odd twist, Visa enticed banks to embrace 
     signature debit--the higher-priced method of handling debit 
     cards--and turned over the fees to banks as an incentive to 
     issue more Visa cards. At least initially, MasterCard and 
     other rivals promoted PIN debit instead.
       As debit cards became the preferred plastic in American 
     wallets, Visa has turned its attention to PIN debit too and 
     increased its market share even more. And it has succeeded--
     not by lowering the fees that merchants pay, but often by 
     pushing them up, making its bank customers happier.
       In an effort to catch up, MasterCard and other rivals 
     eventually raised fees on debit cards too, sometimes higher 
     than Visa, to try to woo bank customers back.
       ``What we witnessed was truly a perverse form of 
     competition,'' said Ronald Congemi, the former chief 
     executive of Star Systems, one of the regional PIN-based 
     networks that has struggled to compete with Visa. ``They 
     competed on the basis of raising prices. What other industry 
     do you know that gets away with that?''
       Visa has managed to dominate the debit landscape despite 
     more than a decade of litigation and antitrust investigations 
     into high fees and anticompetitive behavior, including a 
     settlement in 2003 in which Visa paid $2 billion that some 
     predicted would inject more competition into the debit 
     industry.
       Yet today, Visa has a commanding lead in signature debit in 
     the United States, with a 73 percent share. Its share of the 
     domestic PIN debit market is smaller but growing, at 42 
     percent, making Visa the biggest PIN network, according to 
     The Nilson Report, an industry newsletter.


                          The Risk of Refusing

       Critics complain that Visa does not fight fair, and that it 
     used its market power to force merchants to accept higher 
     costs for debit cards. Merchants say they cannot refuse Visa 
     cards because it would result in lower sales.
       ``A dollar is no longer a dollar in this country,'' said 
     Mallory Duncan, senior vice president of the National Retail 
     Federation, a trade association. ``It's a Visa dollar. It's 
     only worth 99 cents because they take a piece of every one.''
       Visa officials say its critics are griping about debit 
     products that have transformed the nation's payment system, 
     adding convenience for consumers and higher sales for 
     merchants, while cutting the hassle and expense of dealing 
     with cash and checks. In recent years, New York cabbies and 
     McDonald's restaurants are among those reporting higher sales 
     as a result of accepting plastic.
       ``At times we have a perspective problem,'' said William M. 
     Sheedy, Visa's president for the Americas. ``Debit has become 
     so mainstream, some of the people who have benefited have 
     lost sight of what their business model was, what their cost 
     structure was.''
       Visa officials said the costs of debit for merchants had 
     not gone down because the cards now provided greater value 
     than they did five or 10 years ago. The costs must not be too 
     onerous, they say, because merchant acceptance has doubled in 
     the last decade.
       The fees are ``not a cost-based calculation, but a value-
     based calculation,'' said Elizabeth Buse, Visa's global head 
     of product.
       As for Visa's market share, company officials maintain that 
     it is rather small when considered within the larger context 
     of all payments, where, for now at least, cash remains king.
       While Visa may be among the best-known brands in the world, 
     how it operates is a mystery to many consumers.
       Visa does not distribute credit or debit cards, nor does it 
     provide credit so consumers can buy flat-screen televisions 
     or a Starbucks latte. Those tasks are left to the banks, 
     which owned Visa until it went public in 2008.
       Instead, Visa provides an electronic network that acts like 
     a tollbooth, processing the transaction between merchants and 
     banks and collecting a fee that averages 5 or 6 cents every 
     time. For the financial year ended in June, Visa handled 40 
     billion transactions. Banks that issue Visa cards also pay a 
     separate licensing fee, based on payment volume. MasterCard, 
     which is roughly half the size of Visa, uses a similar model.
       ``It's a penny here or there,'' said Moshe Katri, an 
     analyst who tracks the payments industry for Cowen and 
     Company. ``But when you have a billion transactions or more, 
     it adds up.''
       With debit transactions forecast to overtake cash purchases 
     by 2012, the model has investors swooning: Visa's stock 
     traded at $88.14 on Monday, near a 52-week high, while shares 
     of MasterCard, at $256.84 each, have soared by more than 450 
     percent since the company went public in 2006.

[[Page 3735]]

       While there is little controversy about the fees that Visa 
     collects, some merchants are infuriated by a separate, larger 
     fee, called interchange, that Visa makes them pay each time a 
     debit or credit card is swiped. The fees, roughly 1 to 3 
     percent of each purchase, are forwarded to the cardholder's 
     bank to cover costs and promote the issuance of more Visa 
     cards.
       The banks have used interchange fees as a growing profit 
     center and to pay for cardholder perks like rewards programs. 
     Interchange revenue has increased to $45 billion today, from 
     $20 billion in 2002, driven in part by the surge in debit 
     card use.
       Some merchants say there should be no interchange fees on 
     debit purchases, because the money comes directly out of a 
     checking account and does not include the risks and losses 
     associated with credit cards. Regardless, merchants say they 
     inevitably pass on that cost to consumers; the National 
     Retail Federation says the interchange fees cost households 
     an average of $427 in 2008.
       While the cost per transaction may seem small, at Best Buy, 
     the biggest stand-alone electronics chain, ``these 
     skyrocketing fees add up to hundreds of millions of dollars 
     every year,'' said Dee O'Malley, director of financial 
     services. ``Every additional dollar we are forced to pay 
     credit card companies is another dollar we can't use to hire 
     employees, or pass along to our customers in the form of 
     savings.''


                      Weighing Rules on Merchants

       The Justice Department is investigating if rules imposed by 
     payment networks, including Visa, on merchants regarding 
     ``various payment forms'' are anticompetitive, a spokeswoman 
     said. Several bills have been introduced in Congress seeking 
     to give merchants more ability to negotiate interchange, 
     which is largely unregulated.
       While interchange remains legal despite repeated 
     challenges, a group of merchants is pursuing yet another 
     class-action suit, this time in federal court in Brooklyn, 
     against Visa and MasterCard that seeks to upend the system 
     for setting fees.
       ``Visa and MasterCard have morphed into a giant cookie jar 
     for banks at the expense of consumers,'' said Mitch 
     Goldstone, a plaintiff in the case.
       Fees were not an issue when debit cards first gained 
     traction in the 1980s. The small networks that operated 
     automated teller machines, like STAR, Pulse, MAC and NYCE, 
     issued debit cards that required a PIN. MasterCard had its 
     own PIN debit network, called Maestro.
       Merchants were not charged a fee for accepting PIN debit 
     cards, and sometimes they even got a small payment because it 
     saved banks the cost of processing a paper check.
       That changed after Visa entered the debit market. In the 
     1990s, Visa promoted a debit card that let consumers access 
     their checking account on the same network that processed its 
     credit cards, which required a signature.
       To persuade the banks to issue more of its debit cards, 
     Visa charged merchants for these transactions and passed the 
     money to the issuing banks. By 1999, Visa was setting fees of 
     $1.35 on a $100 purchase, while Maestro and other regional 
     PIN networks charged less than a dime, Federal Reserve data 
     shows. Visa says the fee was justified because signature 
     debit was so much more useful than PIN debit; at the time, 
     roughly 15 percent of merchants had keypads for entering a 
     PIN.
       Merchants said they had no choice but to continue taking 
     the debit cards, despite the higher fees; because Visa's 
     rules required them to honor its debit cards if they chose to 
     accept Visa's credit cards.


                          A Seven-Year Battle

       Wal-Mart, Circuit City, Sears and a number of major 
     merchants eventually sued. After seven years of litigation, 
     Visa and MasterCard agreed to end the ``honor all cards'' 
     rule between credit and debit and to pay the retailers a 
     settlement of around $3 billion, one of the largest in 
     American corporate history. Visa paid $2 billion, and 
     MasterCard the remainder.
       Since then, only a handful of retailers have stopped 
     accepting Visa debit cards, an indication that the crux of 
     the lawsuit was ``much ado about nothing,'' Mr. Sheedy says.
       And while some merchants said they thought the lawsuit 
     would pave the way to a new era of competition, a curious 
     thing happened instead: while Visa temporarily lowered its 
     fees for signature debit, it raised the price on PIN debit 
     transactions and passed the funds on to card-issuing banks, 
     and its competitors soon followed.
       The current class-action lawsuit joined by Mr. Goldstone 
     contends that Visa's PIN debit network, called Interlink, is 
     offering banks higher fees as an incentive to issue debit 
     cards that are exclusively routed over this network. 
     Interlink, which has raised its PIN debit fees for small 
     merchants to 90 cents for each $l00 transaction, from 20 
     cents in 2002, is often the most expensive, especially for 
     small merchants, Fed data shows.
       One large retailer, who requested anonymity to preserve its 
     relationship with Visa, provided data that showed Interlink's 
     share of PIN purchases rose to 47 percent in 2009, from 20 
     percent in 2002, even as its fees steadily increased ahead of 
     most other networks--to 49 cents per $100 transaction in 
     2009, from 38 cents in 2006.
       Visa officials say its PIN debit network is taking off 
     despite rising costs because it offers merchants, banks and 
     consumers a level of efficiency and security that regional 
     networks cannot match. ``We are motivated as a company to try 
     to drive value to each one of those participants so that they 
     accept the card, issue more cards, use the card,'' Mr. Sheedy 
     said.
       At checkout counters, meanwhile, consumers are quietly 
     tugged in one direction or the other.
       Safewasy, 7-Eleven and CVS drugstores automatically prompt 
     consumers to do a less costly PIN debit transaction. The 
     banks, however, still steer consumers toward the more 
     expensive form of signature debit. Wells Fargo and Chase are 
     among those that offer bonus points only on debit purchases 
     completed with a signature.
       Visa says it does not care how consumers use their debit 
     card, as long as it is a Visa. But for now at least, the 
     company says the only way to ensure that a purchase is routed 
     over the Visa network is to sign.
       ``When you use your Visa card, you have a chance to win a 
     trip to the Olympic Winter Games,'' a new Visa commercial 
     promises.
       The commercial does not explain the rules, but the fine 
     print on Visa's Web site does: nearly all Visa purchases are 
     eligible--as long as the cardholder does not enter a PIN.

  Mr. DURBIN. I urge my colleagues to read it. It shows how Visa 
leveraged its dominance in the credit card industry to enter into and 
dominate the debit card industry. Visa then changed the debit 
interchange fee system so it looked like the credit card fee system. 
The result: the United States has the highest interchange fees in the 
world.
  We also have some of the worst fraud prevention technology in the 
world. This is because Visa gives banks higher interchange rates for 
so-called signature debit transactions instead of PIN debit 
transactions. So the banks tell their customers to pay with signature 
debit, even though far less fraud occurs with the use of PIN numbers.
  It doesn't have to be this way. Many countries such as Canada have 
thriving debit card systems with zero interchange fees. Canada has low 
fraud and wide consumer debit usage. Other places such as the European 
Union carefully regulate interchange rates to keep them to a reasonable 
level. But in this country, we have let dominant card networks--and 
they are a powerful bunch--take over our debit card system. They are 
driving that system on an unsustainable course.
  I have worked for years to reform interchange fees and to bring 
transparency, competition, and choice to the credit card and debit card 
industry. I first introduced a bill on this in 2008. In 2009, I joined 
with Senator Kit Bond of Missouri to file a modest floor amendment to 
the Credit CARD Act. The amendment simply said interchange fees should 
be reported to the Federal Reserve and that Visa and MasterCard should 
not be allowed to stop merchants from offering discounts for debit 
cards against credit cards. The card companies and bank industry hated 
that idea like the devil hates holy water. They did everything they 
could to kill the amendment. They used their standard talking points, 
saying this amendment would hurt consumers, small banks, credit unions, 
the economy, everything one could think of. The amendment never reached 
a vote. Instead, in 2009, the banks and card companies said they would 
support a study. We love to study things in Washington. So Congress 
delayed real reform and said: Let's get on with the study.
  Last year, I said: Enough is enough. We can't continue to let Visa, 
MasterCard, and the big banks use price-setting schemes to turn our 
debit card system into their own large piggy bank at the expense of 
merchants and consumers. The amendment I offered last year said: If 
banks are going to let a card network set interchange rates for them, 
those rates must be reasonable and proportional to the cost of 
processing a debit transaction over that network's wires.
  Why would we bring the Federal Reserve in to establish a reasonable 
and proportional interest change fee? Because there is no competition 
in this market. Visa and MasterCard, recently under investigation by 
the Department of Justice for their practices, establish what these 
interchange fees are going to be. They impose them on merchants who 
many times are told late in the game how much the fee is. They don't

[[Page 3736]]

bargain. Merchants can't shop around. There is no competition when it 
comes to the establishment of interchange fees.
  The amendment will end this inefficient subsidy that Visa and 
MasterCard have created for banks, and it will incentivize banks to 
operate their card systems efficiently. The amendment directs the Fed 
to issue regulations to implement this reasonable and proportional 
standard. The Fed issued draft regulations in December and is now 
working on final regulations to be completed in April and take effect 
in July.
  Do my colleagues know what they found in their initial cut at this? 
The average interchange fee is in the range of 40 cents, and the 
average cost to use a debit card is about 10 cents. Think of the 
overcharge that is going on with every single transaction. The next 
time you are standing in the airport and somebody hands a debit card to 
the cashier to pay for a pack of gum, think about that retailer just 
having lost money. The only ones who made money in the transaction were 
Visa, MasterCard and the issuing bank.
  Last year, when I was drafting this amendment, I knew we had to be 
careful about the way the reform would affect small banks and credit 
unions that currently benefit from the rates Visa and MasterCard set. I 
didn't want to drive small issuers out of the debit card market. So my 
amendment specifically exempted them from regulation. That means that 
now, just like before, networks will compete by raising interchange 
rates to win the business of those small, unregulated issuers.
  I know the small banks and credit unions are also lobbying on the 
Hill, saying that interchange reform will hurt them. For years, they 
have been making this argument against any type of reform. I have been 
on the Hill for a while, in the House and in the Senate.
  I used to really believe there was a qualitative--not just 
quantitative but a qualitative--difference between community banks and 
credit unions and the big boys, the Wall Street banks. Over the years, 
I am sorry to say when it comes to these issues, they are the same. It 
is just a quantitative difference. Credit unions and community banks 
are smaller, but in terms of the way they look at issues, there is not 
a dime's worth of difference.
  When it comes to this issue, there is an interesting phenomenon at 
work. Visa and MasterCard do not dare raise their head on Capitol Hill. 
If there are two more unpopular companies with American consumers, it 
is hard to think of what they might be. Maybe today it is oil 
companies. But it is a close second with credit card companies and the 
way they treat people. So they do not come in and lobby.
  Well, how about the Wall Street banks? Do you think they are going to 
show up here and say: You cannot regulate these interchange fees? Two-
thirds of the debit cards come from the biggest banks out of Wall 
Street, not the community banks and credit unions. So the big money in 
this whole transaction is on Wall Street. But you do not hear from the 
Wall Street banks. Why? Because they are not going to win any 
popularity contests either.
  It was not that long ago we were shoveling billions of taxpayer 
dollars at these banks to keep the lights on after they made some 
pretty stupid investment decisions that drove our economy into the 
ditch. So they cannot lobby, the big banks, with the big money involved 
in this issue. The credit card companies cannot lobby because they have 
no popularity with the American consumer. So what do they do? They have 
some beards, and the beards in these circumstances are the credit 
unions and the community banks. Those specifically exempted are now 
coming to Congress, coming to Capitol Hill, saying this could hurt us 
in the future.
  We drew a line and said if the asset value of the financial 
institution is below $10 billion--$10 billion--they are not affected by 
this law. There are, if I recall, only three credit unions in America 
with assets over $10 billion. The vast majority, the overwhelming 
majority, of credit unions in this country do not have anywhere near 
that kind of asset value. The same thing is true with community banks.
  So Wall Street banks and credit card companies have found their great 
agents. Their agents are the credit unions, community banks, presenting 
their case to the Members of Congress as if they are directly regulated 
when they are specifically exempted from this.
  I know the small banks and the credit unions are working the Hill. 
For years, they have been using these arguments against any type of 
reform. When we tried to get bankruptcy reform to deal with 
foreclosures a few years back--and I honestly think it could have had a 
dramatically positive impact to slow down foreclosures in this Nation--
we specifically exempted credit unions and community banks, and they 
still lobbied against it. They are in concert when it comes to issues 
with the biggest banks in America. I do not understand it. It is a 
dramatic departure from where they have been historically.
  Independent analysts agree that the reform Congress passed last year 
will give small banks actual competitive advantages over big banks. I 
ask unanimous consent to have printed in the Record a recent op-ed by 
Andrew Kahr in the American Banker newspaper entitled ``Never Mind the 
Lobbyists, Durbin Amendment Helps Small Banks.''
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

            [From American Banker--BankThink, Mar. 3, 2011]

      Never Mind the Lobbyists, Durbin Amendment Helps Small Banks

       The Durbin Amendment in Dodd-Frank lowers the interchange 
     paid to large banks on debit card purchase transactions, and 
     hence takes money away from these banks to give it to 
     merchants, almost dollar for dollar. When passed, this 
     provision was politically popular. It was a time for bank-
     bashing.
       Now this component of Dodd-Frank is much less popular. 
     Maybe legislators have noticed that even if Wal-Mart passed 
     through every last penny of the 0.7% of debit card sales it's 
     apt to save to customers in the form of lower prices, the 
     consumer benefit is likely to be invisible to voters. In any 
     event, the banks have made themselves highly audible to 
     voters in shrill but absurd threats to cap debit card 
     purchases at $50 and the like. Another form of lobbying.
       One of the arguments made against the Durbin restriction on 
     interchange is that it will hurt community banks.
       Poppycock.
       Since Durbin explicitly excludes banks with assets under 
     $10 billion from the restriction on interchange, it takes a 
     hyperactive imagination to see how these banks could be hurt 
     by it. Lobbyists have the requisite inventiveness.
       If large banks get 75% less interchange than they do now 
     and small banks continue to get today's interchange rates, 
     then obviously this confers a substantial competitive 
     advantage on the small banks. They can impose lower fees, pay 
     more interest, and give greater rewards to depositors. 
     Anything that reduces revenue for big banks but not for small 
     ones should help the latter compete more effectively against 
     the former.
       In opposition to common sense, bank lobbyists have put 
     forward some very far-fetched arguments about how, in some 
     upside-down world, small banks are still going to be losers 
     rather than winners from Durbin.
       One argument is that the clearing networks, of which there 
     are only four that matter, will not support the ``two-tier'' 
     interchange system envisaged by Durbin. Ridiculous. Visa is 
     the largest of the networks. It's already announced that it 
     will implement Durbin. (Maybe this is an object lesson as to 
     why Visa remains No. 1.)
       For the small banks, MasterCard is the only other 
     significant player. If MasterCard finds it politic not to add 
     one more wrinkle to a skein of interchange levels that is 
     already of Byzantine complexity, then let the small banks 
     gravitate to Visa in order to benefit from Durbin.
       A second argument of the big-bank lobbyists is that 
     merchants will reject the debit cards of small banks if these 
     carry a 1% interchange cost, versus 0.3% for the large banks. 
     Really? Then why don't these merchants reject all credit 
     cards, with interchange of 2% or more, if the customer could 
     instead use a debit card? When is the last time a merchant 
     politely asked you whether you could pay with a debit card 
     instead of a credit card?
       The reason merchants don't do this, apart from association 
     rules that purport to prohibit it, is that the retailer's top 
     priority is sales, not interchange. Selective ``suppression'' 
     of cards by merchants has occurred with extreme rarity. One 
     instance took place long ago when merchants in Boston 
     revolted against higher interchange rates from American 
     Express. This can't happen now. Are

[[Page 3737]]

     cashiers in stores going to look at a list of small banks in 
     order to discriminate against their cards--and then have 
     customers walk out and leave their would-be purchases at the 
     cash register? The fraction of customers who would be 
     persuaded to change banks or carry two debit cards is 
     infinitesimal.
       The notion that merchants will give discounts on big-bank 
     debit cards but not small-bank debit cards is equally silly. 
     Since when did they offer an incentive to use debit rather 
     than credit cards? If they are not motivated to do so by 2.3% 
     versus 1% interchange, then why should they be motivated by 
     1% versus 0.3%?
       Finally, we are warned that a second, utterly unrelated 
     provision of Durbin that mandates competitive network routing 
     will somehow injure small banks. Impossible. It is 
     predominantly the biggest banks that have negotiated 
     exclusive or volume-dependent routing deals with Visa or 
     others. This too gives them an advantage over small banks 
     that Durbin will undermine or erase--to the benefit of the 
     small banks.
       The charm of the Durbin debate on interchange is that it 
     largely amounts to ``Who's going to get the money, big banks 
     or merchants?'' (In other words, ``Which do you like less, 
     Congressman, big banks, or big merchants?'')
       Outside the realms of taxation and appropriations, it is 
     unusual to see such a choice so sharply focused for our 
     representatives in Washington.
       Ben Bernanke and other regulators would like to see less 
     pressure on big-bank earnings and capital. That's 
     understandable. Maybe it's even a winning--though illogical--
     argument.
       But let's not talk nonsense about bogeyman danger to 
     community banks.

  Mr. DURBIN. Now, Kahr is no mouthpiece for merchants. He is a 
financial consultant who is recognized as the creator of many aspects 
of the modern card industry. But he says what I have been saying for 
months--that the arguments small banks have been making against my 
amendment defy economic logic and common sense.
  I also believe interchange reform is essential for consumers. Banks 
will tell you consumers will be hurt by reform because banks will have 
to raise consumer fees to make up for lost revenue.
  First, when did we start listening to banks and credit card companies 
to tell us what is good for consumers? Second, read the headlines for 
the past few years and you will see that banks were already raising 
consumer fees to record highs in 2008, 2009, and 2010--before my 
amendment became law. They are always looking for ways to raise fees on 
consumers as high as the market will allow.
  Third, consumers are already paying for the current interchange 
system. Soaring interchange fees are passed on to consumers in the form 
of higher prices for gasoline and groceries. And the current system 
particularly hurts unbanked consumers who pay with cash.
  I believe consumers benefit from transparency, competition, and 
choice. The current interchange system has been designed specifically 
to avoid these features. That is why consumer groups agree with me and 
support the interchange reform which we have on the books.
  I know the financial industry lobbyists are out there now storming 
the Halls of Congress. They are saying: Let's delay the Fed's 
interchange rulemaking for a year or two. Let's study this issue some 
more. Study, study, study; this is one great study hall, this U.S. 
Senate. But there comes a point when we need to act, and we are 
prepared to act now with the Federal Reserve in April and in July.
  There is no need to delay these rules. Read the comments I submitted 
to the Fed about their draft rulemaking. You will see how the new law 
provides reasonable timeframes for implementing every part of the Fed's 
rules.
  I saw this call for delay and study before, on the Credit CARD Act 
back in 2009, and it does not surprise me we are hearing it again.
  If my colleagues remember nothing else, they should remember this: 
Delaying interchange reform will have significant consequences to 
employers, small businesses, and consumers all across America. Not only 
will businesses, universities, government agencies, and charities keep 
paying the current $1.3 billion per month in debit interchange fees, 
the fees will keep going up further. There will be nothing to constrain 
Visa and MasterCard from setting higher and higher fees. There is no 
competition in this industry.
  Some of my colleagues say they are concerned about small banks and 
consumers. So am I. That is why I drafted the amendment to exempt them. 
Independent analysts and consumer groups agree that the reform we 
passed protects small banks and consumers.
  I say to my colleagues, do not tell me you are worried about small 
banks and consumers and then push for a delay that will serve to 
provide $1 billion a month in more fees primarily to the largest banks 
in America.
  A delay in this implementation would give Visa and MasterCard and the 
big banks a multibillion-dollar handout--have we heard this song 
before?--while leaving merchants and consumers worse off than they 
already are. I am not going to sit by and let the big banks and card 
companies get away with trying to kill this reform. They have been 
bailed out enough already.
  I urge my colleagues in Congress: Do not bail out the big banks on 
Wall Street another time. Once in a political lifetime is enough for 
most of us.
  I am standing with the consumers and merchants on this issue. I hope 
my colleagues will join me and find it is a good place to stand.
  I yield the floor.

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