[Congressional Record (Bound Edition), Volume 157 (2011), Part 3]
[Senate]
[Pages 4145-4147]
[From the U.S. Government Publishing Office, www.gpo.gov]




                         DEBIT CARD SWIPE FEES

  Mr. DURBIN. This week, we are considering legislation on the Senate 
floor that affects small businesses. I want to talk about another issue 
very important to small businesses; that is, the topic of interchange 
fees, also known as swipe fees.
  Last week, nearly 200 small businesses came to Washington, DC, from 
Illinois and from all across America. They came to stand up in support 
of the reform of interchange fees, swipe fees, that Congress passed 
last year. They came to stand up to the major credit card companies, 
Visa and MasterCard, and the $13 trillion banking industry that is 
doing everything in its power to reverse this reform.
  We all know small businesses are the key to our economy and its 
future. We need for them to be able to grow, to hire more workers, and 
serve their customers well. But debit card swipe fees set by Visa and 
MasterCard on behalf of their big bank allies are crushing many small 
businesses.
  Back in 2009, the banks made over $16 billion per year in debit swipe 
fees, about $1.3 billion per month. Now, $16 billion may not sound like 
a lot of money when you compare it to the $20.8 billion that the New 
York State comptroller said was paid out in Wall Street bonuses to 
major financial institutions just last year, but it is a huge amount 
when it affects small business.
  For most Americans on Main Street, $16 billion in swipe fees is quite 
a lot. This money comes out of the pockets of small business owners 
across America and out of the pockets of their customers, who pay 
higher prices for gas and groceries as a result.
  According to data from the Federal Reserve and the Nilson Report, 
over half of all debit interchange fees--more than $8 billion per 
year--goes to just 10 giant banks.
  What it boils down to is this: Some who are pushing for a delay in 
this reform are literally offering a handout of $16 billion mainly to 
the biggest banks in America.
  The swipe fee system does not have transparency and has no 
competition. The bottom line is that the current debit card system in 
this country is a broken market. Ask any retailer, large or small, 
hotel owner, restaurant owner, convenience store owner, gas station, 
ask them what bargaining power they have when it comes to the amount 
they are charged for the use of a debit card, and the answer is, none. 
Ask them how much is being paid in each transaction. And the answer is, 
it is secret. Now, is that how you would build an economy, with no 
competition and no transparency? That is exactly what is going on with 
the duopoly of

[[Page 4146]]

Visa and MasterCard imposing these fees on small businesses.
  The banks and card companies are sending an army of lobbyists to 
Congress to undo the reform Congress passed last year. There are 
hundreds of bankers swarming over Capitol Hill this week. Several 
Members who have never supported an interchange reform in the first 
place have introduced legislation to delay that reform that we passed. 
I am sorry to say that this plays right into the banking industry's 
effort to avoid accountability.
  I want my colleagues to know that small businesses are going to tell 
their side of the story too.
  Todd McCracken is the president of the National Small Business 
Association. He came to Capitol Hill last week, and this is what he 
said:

       Small businesses aren't trying to do away with credit and 
     debit cards, we just want them to play by the rules. Small 
     businesses have been at the mercy of these large banks for 
     years, and the swipe fee reforms merely inject fairness and 
     transparency into a market that has been dictated by a 
     handful of companies for years.

  Hundreds of small businesses also submitted formal comments to the 
Federal Reserve in support of reform. Those comments are posted on the 
Federal Reserve's Web site. I would like to read a few of those from my 
home State of Illinois.
  Nolan Williamson runs a flower shop. It is called Jerry's Flower 
Shoppe in Carbondale, IL. Carbondale, IL, in southern Illinois, is the 
home of Southern Illinois University. Here is what Nolan wrote to the 
Federal Reserve:

       In 1964, Jerry's Flower Shoppe opened, and for 35 years I 
     have been a partner in the business. We are located in a 
     university town, and our business depends greatly on the 
     university. Since the university budget is down and they are 
     not spending, our business is suffering.
       We have streamlined our business as much as possible. We 
     were forced to lay off one employee for a while, then brought 
     her back at reduced pay and reduced hours. As a retail 
     business, we have no choice but to accept credit and debit 
     cards. We had to increase prices to cover the high 
     interchange card fees. Even with a price increase, these high 
     card fees are eating away our profits.

  Nolan concluded by saying:

       Help our struggling business and other small businesses 
     around the country. Reduce our swipe fees to 12 cents as 
     proposed.

  He alludes to the fact that when the Federal Reserve took a look at 
the actual interchange fee being charged for the use of a debit card, 
they estimated the average to be over 40 cents per transaction, which 
is more than 1.1 percent of the value of each transaction. The actual 
cost? Less than 10 cents. So what the credit and debit card companies 
are doing is imposing a fee that there is no bargaining over, no 
competition, no disclosure, and forcing retailers to pay it. Jerry's 
Flower Shoppe does not have a fighting chance against Visa and 
MasterCard. They have to pay it or else. That is, of course, 
transferred to a cost to customers and reduced profit to the owners.
  Here is another comment from Bob Stork. He owns Stork's Catering in 
Springfield. I know Bob. Here is what he says:

       My business has been in operation for about 35 years. We 
     are just a small enterprise with five employees. The economic 
     situation has taken a toll not only on my business, but also 
     on companies all across the country. Personally, I believe 
     that swipe fees are hindering these struggling businesses 
     even further. If these fees keep rising, they will eventually 
     place such a strain on us that we may be forced to close our 
     doors. Please continue your efforts to regulate the debit 
     swipe fees.

  Here is a comment from Norman Flynn. He has a business, Culligan 
Water Conditioning, in Macomb, had it for over 70 years in his family. 
He said:

       We really cannot afford to keep getting hit with 
     unnecessary fees. Please seek to get the proposed rule 
     implemented quickly so that debit swipe fees will be lowered 
     and small businesses will get some breathing room.

  I hope my colleagues understand that these small businesses need 
relief right now. They need to understand that delaying swipe fee 
reform, which a bill just introduced this week would do, would give 
Visa and MasterCard and the banks a multibillion-dollar handout and 
would leave small businesses and consumers footing the bill.
  We have heard a lot about the bailout of Wall Street. This is the 
handout to Wall Street. To think that they would turn around and give 
to these companies $32 billion in handouts, most of it going to the 
largest banks in America, by delaying this rule at the expense of small 
businesses and consumers all across America.
  As the big banks and card companies make their pitch, I hope my 
colleagues will make their choice to stand with Main Street instead of 
Wall Street. I hope they choose to stand on the side of hard-working 
small business owners. Most Americans understand--and I sure do--that 
good jobs are created by small businesses all over this country. We 
have to be on their side in this struggle and not on the side of the 
biggest banks and Wall Street.
  I wish to respond to another argument that was raised recently 
against interchange reform. Banks such as JPMorgan Chase have started 
threatening that interchange reform will force them to limit debit card 
transactions to $100 per transaction. This threat is so hollow, I am 
amazed they are saying it publicly. It is a threat that defies basic 
logic. Remember, it does not cost a bank any more to conduct a $100 
debit transaction than it does a $1 transaction. In both cases, the 
cardholder must already have the money in his account. The costs to 
transfer that money through the network's wires are the same no matter 
the dollar amount. The only logical reason why banks such as Chase 
would make this threat is to scare opposition to interchange reform.
  Once reform takes effect, big banks such as Chase would be crazy to 
follow through on this threat of imposing dollar limits on debit 
transactions. If they did, consumers will start moving in droves to 
small banks which are not regulated by this bill and will not impose 
unnecessary restrictions.
  Chase also has no business to argue that they have to limit large-
dollar debit transactions because they are afraid about fraud. 
Remember, this is the same Chase bank that last April told all of its 
debit card holders not to use PIN numbers even though PIN has one-sixth 
as much fraud loss as signature debit cards. Chase did this because 
Visa and MasterCard give higher interchange fees for signature debit 
than for PIN debit. Chase is the poster child for banks that have 
brought increased fraud risks upon themselves by not using PIN numbers.
  I also want to respond to my colleagues who tell me they are hearing 
from banks and card companies that consumers might be hurt by 
interchange reform. First of all, these banks and card companies have 
no credibility when it comes to speaking on behalf of consumers. They 
say interchange reform will force them to raise fees on consumers, but 
they will not even admit that they were already raising consumer fees 
to record levels before interchange change reform passed.
  Glance back at headlines like these: November 12, 2008, Wall Street 
Journal, ``Banks Boost Customer Fees to Record Highs.'' May 28, 2009, 
USA TODAY, ``Banks Find Ways to Boost Fees; Checking Accounts Latest 
Target.''
  Banks and card companies also refuse to concede that consumers 
already bear the cost of interchange fees in the form of higher retail 
prices. That is particularly hard on the unbanked and low-income 
Americans.
  Instead of listening to banks and card companies about consumer 
interests, I suggest my colleagues listen to those consumer groups in 
Washington.
  Just this week, the Consumer Federation of America sent a letter to 
all Senators. Here is what it said:

       The current interchange system is uncompetitive, non-
     transparent, and harmful to consumers. It is simply unjust to 
     require less affluent Americans who do not participate in or 
     benefit from the payment card or banking system to pay for 
     excessive debit interchange fees that are passed through to 
     the cost of goods and services. As a result, the Consumer 
     Federation of America does not support delaying 
     implementation of the new law.

  Other groups, such as U.S. Public Interest Research Group, Public 
Citizen, and the Hispanic Institute, have argued strongly that 
interchange reform will help consumers across America, just as it has 
helped consumers in many other

[[Page 4147]]

countries that have undertaken reform.
  Do you know what the interchange fee is in Canada? It is zero. The 
same companies that are offering debit cards here in the United States 
do not charge an interchange fee in Canada. And they have just recently 
reduced the interchange fees dramatically in Europe, much lower than 
the United States. Same companies.
  How can they do that? They did it because the governments of Europe 
stepped up and said: This is a ripoff. You can no longer impose, 
unilaterally, interchange fees, and we are going to regulate it.
  They said: Please do not. We will just drop the fees dramatically.
  And they did.
  Look what is happening here. We have a group of Senators and 
Congressmen who are now saying: We are not only refusing to assert the 
rights of consumers, we are going to back off and let the banks and 
card companies charge whatever they want for at least 2 more years. 
Whatever happened to our sensitivity to the people we are supposed to 
represent--the consumers and the small businesses? That, to me, is a 
troubling outcome, if, in fact, those who push this legislation 
continue to do so.
  We all know the game plan that Visa, MasterCard, and the $13 trillion 
banking industry is using.
  We have seen it before. They will try to kill interchange reform 
outright using threats and scare tactics. If they can't kill it, they 
will try to delay it, praying that the next President and the next 
Congress will be even friendlier to the banking industry.
  Exactly the same thing happened when Congress passed the Credit Card 
Act in 2009. The banks and card companies fell all over themselves 
trying to raise fees before the rules went into effect. When I would go 
home to Springfield, my wife would say to me: Guess what, here is 
another notice from the credit card company raising the interest rate 
you have to pay on late charges. I thought you passed credit card 
reform.
  I said: It doesn't take effect for a few more months. They are 
running as fast as they can to run up the fees in the meantime.
  That is what is happening to businesses with the interchange fees. A 
lot of people don't know it because they don't get a notice in the mail 
about the interchange fee. That has been their game plan in the past, 
and it is their game plan again.
  I am sick of the big banks and card companies squeezing American 
consumers and small businesses with tricks and traps and unfair fees. I 
will stand with the small businesses and consumers of America on this 
issue. I will fight the big banks and the big credit cards and their 
efforts to kill or delay swipe fee reform.
  I urge my colleagues to join me in standing up for Main Street and 
against the abusive fees and practices of Wall Street.

                          ____________________