[Congressional Record (Bound Edition), Volume 157 (2011), Part 3]
[Senate]
[Pages 4258-4260]
[From the U.S. Government Publishing Office, www.gpo.gov]




                            INTERCHANGE FEES

  Mr. DURBIN. Mr. President, I usually do not get up in the morning and 
race to read the editorial page of the Wall Street Journal. It is not 
part of my morning routine. I do not agree with them on most of the 
positions they have taken and I have found many times the statements 
they make are sometimes grossly inaccurate. This morning was no 
exception.
  They printed an editorial on the issue of interchange fees on debit 
cards. They had some critical things to say, which is their right, and 
my responsibility as an elected official to absorb. I know folks on 
Wall Street and their friends in the press are not happy with the 
interchange reform which Congress passed last year. They are certainly 
entitled to their opinion, but they are not entitled to their own 
alternative reality. When I read this Wall Street Journal editorial 
this morning, I felt as though I had entered into some fact-free 
twilight zone.
  Swipe fee reform is an important issue. So the people who are 
following this debate understand what we are talking about; each time 
you use a credit card or a debit card to pay for something--a meal at a 
restaurant, groceries, pharmaceuticals, a donation to a charity, buying 
gas for your car--each time you do there is a fee that is charged to 
the merchant. That fee is charged by both the bank issuing the card and 
the underlying credit card company. It is called an interchange fee.
  And it is a fee that is imposed on businesses large and small all 
across America literally without negotiation. It is a fee that is 
dictated because there is little or no competition.
  The Wall Street Journal probably prides itself on being the protector 
or defender of the free market system. There is no free market system 
when it comes to interchange fees. If you want to accept a Visa or 
MasterCard from a certain bank, you will pay a certain interchange fee 
every time a card is used at your establishment. What I learned in a 
hearing on this subject years ago is that there is virtually no 
negotiation in establishing these fees. And merchants came to me. The 
first who came to me was not a major retailer but a buddy of mine in 
Quincy, IL, named Rich Niemann. Rich Niemann is a very conservative man 
who probably reads the Wall Street Journal every day, but he has done 
quite well for himself and his family and his company by opening up 
food stores all over the Midwest.
  Rich is a roll-up-your-sleeves, grassroots businessman. He said to 
me: Senator Durbin, these credit card companies and their banks are 
killing us. The interchange fees bear no relationship to the actual 
cost of the transaction.
  He said: You know, if somebody pays for groceries with a check, it 
clears the bank for pennies regardless of whether the check is for $10 
or $100. If they use a debit card, which is a plastic check

[[Page 4259]]

drawing directly out of their account to pay, it ends up we pay an 
interchange fee which is substantially higher; and there is nothing we 
can say about it.
  The Wall Street Journal, the defender of the free market system, the 
defender of competition, has to acknowledge the reality that there is 
no competition when it comes to these duopolies, Visa and MasterCard, 
and when you consider that merchants have no voice or little voice in 
establishing what their fee is going to be when it is charged.
  So we came to the floor of the Senate and said we need to have 
interchange fee reform. The measure passed, the amendment passed, by a 
margin of 64 votes--17 Republicans, 47 Democrats--and then was accepted 
in conference and became part of the law, the Dodd-Frank Wall Street 
reform.
  What it said was this: The Federal Reserve would analyze the current 
state of the market and establish what a reasonable and proportional 
interchange fee would be, what is fair. Since there is no competition 
under the current system, let's at least establish what is fair. Let's 
not let Visa, MasterCard, and the banks fix prices for lack of 
competition.
  You know what the early analysis showed? The average interchange fee 
was in the range of 40 cents per transaction. The actual cost? The 
actual cost? Closer to 10 cents, maybe even less. They were charging 
three to four times as much over the cost of actually clearing the 
transaction to merchants and retailers across America, which, of 
course, diminishes their profitability, diminishes their ability to 
expand their small businesses and large alike and is passed on to the 
consumer.
  Now, you would think even the Wall Street Journal, this bastion of 
conservatism and defender of the free market, would acknowledge the 
obvious. The obvious is, small businesses and large businesses alike 
are being overcharged across America by credit card companies and banks 
without restraint. That is not a free market that is imposing a cost.
  What is it worth in terms of interchange fees, which they refer to 
kind of dismissively as small and not to be concerned about? What is it 
worth to the credit card industry and the major banks in America every 
month? It is worth $1.3 billion in interchange fees collected on debit 
cards--$1.3 billion.
  So let's do the math for a minute. It is over $15 billion a year--$15 
billion a year--which the Wall Street Journal wants to protect as a 
handout to the biggest banks and credit card companies in America. 
Well, be my guest, Wall Street Journal, but do not stand up and say you 
are defending businesses across America because businesses, large and 
small, are sick and tired of the noncompetitive, opaque system that 
currently exists they are paying for.
  My amendment does not create price fixing. It places reasonable 
limits on price fixing that is already present in the interchange 
system. If you look at any bank's Web site, see if you can find how 
much that bank charges merchants in interchange fees. You will not find 
anything. There is no disclosure.
  Why? Because for years the banks let Visa and MasterCard fix the 
interchange rates that each bank receives when its card is swiped. This 
means banks do not have to compete with one another on the fees they 
receive from merchants. They all receive the same fees no matter how 
much any particular bank actually spends to process a transaction or 
prevent fraud.
  The current interchange system, the one that needs to be reformed, is 
a price-fixing scheme. Period. My amendment simply says if big banks 
are going to let the Visa and MasterCard duopoly fix fees on their 
behalf, the Federal Reserve should regulate those fees so they are 
reasonable. If a bank wants to charge its own fees to reflect the cost 
it bears, so be it. My amendment does not regulate that. As long as 
those fees are transparent and competitive, I am fine with them. But 
when the banks all get together, when they conspire to let Visa and 
MasterCard fix fees for them, that is when my amendment steps in. That 
is what offends the Wall Street Journal, the defender of America's free 
markets.
  We know big banks today receive far more in interchange than it costs 
them to do debit transactions. They use this excess interchange subsidy 
for things such as ads and reward programs and executive bonuses and, 
certainly, for profits. That is what they do.
  The effect of my amendment will be to squeeze the fat out of the 
interchange system. Big banks will still be able to use interchange to 
pay for reasonable processing costs, but they will not be able to use 
this interchange scheme to take excess fees out of the pockets of 
merchants and their customers.
  Well, you might ask, is this the case in every country? The answer 
is, no. In other countries that use Visa and MasterCard, something 
interesting has occurred. Do you know what the interchange fee is on 
debit card transactions in Canada? Zero. No fee. Do you know what it is 
in Europe? It is a tiny fraction of what it is in the United States. So 
for Visa and MasterCard and the banks that issue these cards to argue 
that even reducing interchange fees will cripple them, will force them 
to raise fees, will cancel services they already offer, is to belie the 
reality that in many places in the world, unlike America, they are not 
overcharging merchants. They have reasonable interchange fees; in some 
places, no interchange fees.
  Let's look at the Wall Street Journal's claim that because of swipe 
fee reform, we ``will soon be paying for check-writing privileges.'' 
Well, this is an old song. We have heard it before.
  It is surprising the Wall Street Journal would repeat this argument 
to say that interchange reform will cause people to start paying for 
their checking accounts. I would urge them to read back issues of their 
own newspaper. Let's go back to the November 12, 2008, Wall Street 
Journal article entitled, ``Banks Boost Customer Fees to Record 
Highs.'' Well, this was long before the Durbin amendment. They were 
already raising fees, and they will continue to raise fees. That is why 
some of the banks enjoy huge profit margins and bonuses, dramatic 
bonuses, for the executives who work there.
  They might read the opening line of that article which said:

       Banks are responding to the troubled economy by jacking up 
     fees on their checking accounts to record amounts.

  I am quoting the Wall Street Journal. They were already raising fees 
on customers long before this debate began. Another line in the same 
article says:

       The average costs of checking-account fees, including ATM 
     surcharges, bounced-check fees and monthly service fees, have 
     hit record highs.

  That was 2008, long before our debate on the Senate floor. If the 
Wall Street Journal's writers cannot be bothered to even read their own 
newspaper, I urge them to read what the Bank of America's spokeswoman, 
Anne Pace, told the Associated Press on October 19, 2010. She said:

       Customers never had free checking accounts. They always 
     paid for it in other ways, sometimes with penalty fees.

  Again, this is a spokesman for the industry being brutally honest 
about free checking.
  It astonishes me how many people simply repeat the banking industry's 
talking points without ever doing any fact checking. Banks always say 
if anybody tries to regulate them, it will lead to higher consumer fees 
and checking fees; and reporters print it like it is the gospel.
  Hasn't anyone ever realized that threatening higher consumer fees is 
a great strategy to scare away any efforts at reform? It is a great 
tactic because it is all speculation. We cannot prove or disprove for 
sure what is going to happen in the future.
  What we can do is look at past experience and use it as a guide. For 
example, we know from the last few years that banks and credit card 
companies have constantly tried to raise fees both on consumers and 
merchants as high as the market would allow them to go despite the 
recession. We also know from experience that competitive markets, which 
the Wall Street Journal should

[[Page 4260]]

honor before they honor these duopolies involved in price fixing--
competitive markets overseen by reasonable regulation are the best way 
to keep fees and prices at an appropriate level.
  Unfortunately, we also know the current interchange system is an 
unregulated, uncompetitive market. That is why we see fees that are 
hidden, nonnegotiable, and many times higher than what a competitive 
market would produce.
  Let's talk about the Wall Street Journal's views on how swipe fee 
reform will impact consumers. I do not know that the Wall Street 
Journal would be viewed by many, if any, as a great proconsumer 
publication. This morning they wanted to wear that mantle. They say it 
is a ``hoax'' that reform is proconsumer; then, ``as usual, the little 
guy is going to get trampled.''
  How frequently have you turned to the Wall Street Journal to find out 
who is going to stand up for the little guy in America? Almost never in 
my case and, certainly, they have this wrong.
  Some might say it is great the Wall Street Journal now appears to 
care about consumers. Of course, I would feel better about it if I had 
not read yesterday's editorial in the Journal. That is one where they 
said they would like to see Congress kill the Consumer Financial 
Protection Bureau.
  This is a series. There is a recurring theme. The theme is consumers 
are going to lose, and merchants are going to lose, and small business 
is going to lose if this defender of the market, the Wall Street 
Journal, has its way.
  Here is the reality. Consumers right now are already paying for the 
interchange system. In November 2009 the GAO said, under the current 
system, ``merchants pass on their increasing card acceptance costs to 
the customers.'' The Consumer Federation of America, which supports 
reform and opposes the repeal that is now underway, does care about 
consumers. That is why they exist. Here is what they said in a letter 
this week:

       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.

  That quote is from the Consumer Federation of America. U.S. PIRG, 
Public Citizen, and the Hispanic Institute submitted testimony last 
month where they said:

       The current swipe fee market is broken and all consumers 
     pay more for less because of escalating swipe fees.

  They also said:

       Sixteen countries and the European Union regulate swipe 
     fees and their experience demonstrates that regulation 
     benefits consumers in lower fees and lower costs of goods.

  Make no mistake, what is at stake here--what is at stake here with 
the effort to repeal or delay the implementation of this reform on 
behalf of businesses, large and small, across America--what is at stake 
here is a handout to the largest banks in America and the credit card 
companies of more than $15 billion a year.
  A bailout was not enough for these big banks. Now they want a 
handout, and the Wall Street Journal is standing by the sidelines 
applauding that notion. These defenders of free enterprise cannot wait 
to construct a system where the largest banks on Wall Street and the 
credit card giants can take more money out of our economy from small 
businesses and consumers alike. That is their idea of free enterprise; 
it is not mine.
  The Wall Street Journal accuses me of pushing for swipe reform as a 
``sop to Wal-Mart, Home Depot and other giant retailers.''
  Well, make no mistake. Every merchant, every business accepting debit 
cards is going to be affected by this reform, large and small. And the 
facts tell us that everyone who accepts debit cards will benefit from 
swipe fee reform, not just big merchants but small businesses, 
universities, health care providers, charities, government agencies, as 
well as many others, convenience stores--the list goes on.
  I ordered a study 2 years ago and held a hearing last year in my 
appropriations subcommittee on how much the Federal Government pays in 
interchange fees with our taxpayer dollars. The total was $116 million 
a year. Those who are supporting the repeal or delay of this reform are 
imposing additional debt on a government already deep in debt. Where 
will those debts be incurred? From the biggest banks on Wall Street and 
the biggest credit card companies, by and large.
  I tried to reform the government interchange rate on my 
appropriations bill last year but could not get it through. I will be 
back.
  I have been at this interchange reform effort for a number of years 
now. I got into it because of a hearing held by then-Republican Senator 
Arlen Specter. Before that hearing, I did not know or even understand 
this issue. After it, I decided something had to be done. I would not 
be doing this if it was just for the big box companies. I would not be 
fighting so hard for reform if it was not good for small businesses and 
certainly for consumers and the American economy.
  I hope the Wall Street Journal is also aware that card companies such 
as Visa charge higher interchange fees to small business than to big 
businesses. How do you like that for competition? Small businesses get 
it the worst under the current system. Wouldn't it be nice if the Wall 
Street Journal stood for small business once in a while? Go look at 
Visa's Web site, at their interchange rates for retail debit. You will 
see right now the biggest retailers have to pay an interchange fee of 
0.62 percent plus 13 cents a transaction, while the smallest retailers 
pay 0.95 percent plus 20 cents a transaction.
  Dollar for dollar, interchange reform will help small businesses more 
than big ones. That is the reality of this reform.
  I do not expect to ever be endorsed by the Wall Street Journal. I do 
not even know if they make endorsements, and I have not even asked. But 
I am going to insist they stick with the facts. I know the Wall Street 
Journal is not going to stray very far from Wall Street banks, which 
bear the same basic name, as well as the credit card companies that are 
a duopoly in this American economy. I am going to continue this battle 
for Main Street, not Wall Street.
  I urge my colleagues who are being inundated--literally inundated--by 
banking lobbyists right now seeking to stop this reform; that when they 
go home, steer away from the big banks. Go to the small businesses that 
accept credit cards and debit cards. Go to any one of them and ask them 
whether they think this is an important reform for the future of their 
small business, their employees, and for the local economy. I think 
they are going to hear the other side of the story. Some of these small 
businesses cannot afford the lobbyists who are prowling the halls of 
Washington today, but they deserve our attention as much as, if not 
more than, the big banks on Wall Street and the card companies.
  I yield the floor and suggest the absence of a quorum.
  The ACTING PRESIDENT pro tempore. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Ms. LANDRIEU. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.

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