[Congressional Record (Bound Edition), Volume 157 (2011), Part 4]
[Senate]
[Pages 5197-5199]
[From the U.S. Government Publishing Office, www.gpo.gov]




                         INTERCHANGE FEE REFORM

  Mr. DURBIN. Madam President, I rise to speak about the issue of Wall 
Street reform, which I know is near and dear to the Senator from New 
York, who represents Wall Street.
  I do believe what Congress achieved last year on Wall Street reform 
was wise not only for our Nation but also to avoid the possibility of 
another recession. There are many financial institutions across the 
United States, including New York, but the fact is, many of their 
practices led us into the recession we are now experiencing.
  It was quite a battle last year. Senator Chris Dodd of Connecticut, 
now retired, led the battle on the floor of the Senate to try to make 
sure we had the necessary oversight and balance when it came to our 
financial institutions to avoid the likelihood of another recession. 
The banks fought back, but in the end we prevailed and Senator Dodd 
passed the measure here in the Senate, and it was passed in the House 
of Representatives under the leadership of Congressman Barney Frank of 
Massachusetts and signed by the President. It really gave us a chance 
to move forward with oversight, regulation and reform on Wall Street.
  It was signed last July by the President, but many of the most 
important elements of the Dodd-Frank bill will not go into effect until 
July 21 of this year. Several of them are very important to America and 
important to me as an individual because as a Senator I offered an 
amendment to this bill. It was a controversial amendment and, for the 
banks, an expensive amendment. For the Wall Street banks and credit 
card companies, the interchange fee amendment, which I introduced and 
passed with 64 votes--17 Republicans and 47 Democrats--was an amendment 
which will cost the biggest banks and credit card companies in this 
country a portion of the up to $1.3 billion a month they collect in 
debit interchange fees. Imagine that. In any given year, $15 billion or 
$16 billion is being collected by these banks through credit cards from 
merchants, retailers, and consumers all across America.
  From the moment that bill was signed into law, these Wall Street 
banks and credit card companies have been involved in an all-out, 
nonstop campaign to repeal the law. Now, they can't just flat-out 
repeal it because they know that looks a little too obvious. So 
instead, what they are calling for is postponement--just postpone it 
for 2 years while they study it. That is their argument. They believe 
we need to look into this a little more closely. Well, the record 
suggests they are not after a study. They are after $1.3 billion a 
month in profit. It turns out it is actually 30 months that the delay 
would take place, so that is about a $40 billion postponement that the 
Wall Street banks and credit card companies are asking for. And who 
pays the $40 billion? Merchants and retailers and customers all across 
America. That is why leading consumer advocacy groups support my 
amendment and oppose this $40 billion delay which has been suggested in 
the amendment that is being offered.
  Last year, when we passed landmark legislation to reform the debit 
card swipe fees that are enriching Wall Street banks and crushing 
businesses and consumers on Main Street, they started organizing to 
repeal.
  For years, the banking industry has been engaged in a collusive 
practice. Banks have let the Visa and MasterCard monopoly credit card 
companies fix the interchange fee rates that banks receive from 
merchants each time a debit card is swiped. The so-called swipe fee is 
the fee the banks get, but they don't set the fees, the credit card 
companies set them. This is unregulated price fixing by the VISA and 
MasterCard duopoly on behalf of thousands of banks, primarily the 
biggest banks in America. The same banks we bailed out are now coming 
back here and saying don't cut into our profits, don't in any way 
reform or change the interchange fee that affects merchants, retailers, 
or consumers.
  Incidentally, when the Federal Reserve took a look at the interchange 
fee that we pay every time we use a debit card, for example, it 
averages about 40 cents. The actual cost of using the debit card: less 
than 12 cents. So what they are doing is imposing this fee on every 
transaction in every place across America. This is unregulated price 
fixing by VISA and MasterCard. It is a sweetheart deal for the banks, 
too. According to the Federal Reserve, banks make about $1.3 billion 
each month, as I mentioned, in debit interchange fees and the fee rates 
keep going up even though the cost of processing continues to drop.
  Last year, Congress decided we should place some reasonable limits on 
VISA and MasterCard. We did this to ensure that they cannot use their 
market power and price-fixing ability to funnel excessive fees to the 
Nation's biggest banks. Congress said if VISA and MasterCard are going 
to continue fixing interchange rates that merchants pay banks, the 
rates ought to be reasonable and proportional to the actual cost of 
processing the transaction. It is a narrowly targeted reform and we 
made a major exemption of small banks and credit unions. If they had 
assets of less than $10 billion, they were exempt. You wouldn't know 
that. They are acting as if this is going to apply to them. I recommend 
they read the law, which specifically exempts them.

[[Page 5198]]

  There are two arguments which have been raised recently in opposition 
to interchange reform. The first is we need more studies. I know banks 
and credit card companies believe that interchange reform needs to be 
studied to death but many studies have already been done. There were at 
least seven congressional hearings specifically on interchange fees 
before we passed the amendment. I chaired one of them. Another two 
hearings on interchange fees have been held since the amendment became 
law. There were also at least three different GAO studies on 
interchange fees prior to the amendment's passage. It is not as if this 
matter has not been studied; it has been.
  That is not all. Economists and payment systems experts at the 
Federal Reserve have been studying interchange fees for years. They 
have put out at least 10 significant reports. Do we need another study?
  One of them was the January of 2010 study by Fumiko Hayashi, a senior 
economist at the Federal Reserve Bank in Kansas City. She did an 
international comparison of interchange fees in the United States and 
12 other countries. Listen to what she found: ``In general, the United 
States has the highest debit card interchange fees'' and that ``the 
United States has the highest interchange fees for both credit and 
debit cards among the 13 countries where adoption and usage of payment 
cards are well advanced.''
  I can see why the banks and credit card companies want to ignore that 
study. Americans are paying more every time they use plastic than any 
other of 13 of the largest nations in the world that use credit and 
debit cards. Do you know what the debit fee is in Canada, from VISA and 
MasterCard? Zero--40 cents a transaction for the United States of 
America, God bless them for treating us so kindly; zero for Canada. 
Why? Because the Canadian Government spoke up for retailers, merchants, 
and consumers, and said stop this. It is price fixing. Now we have done 
the same and the Wall Street lobby and the credit card lobby are coming 
down here hitting hard to repeal this interchange fee reform.
  There was another comprehensive study, a 2009 paper put forward by 
the Federal Reserve's Divisions of Research and Statistics entitled 
``Interchange Fees and Payment Card Networks: Economics, Industry 
Developments, and Policy Issues.'' This study analyzed the structure 
and economic theory behind the interchange system and discussed various 
ways of reforming the system.
  Then there was a 2008 paper by James McAndrews and Zhu Wang of the 
Kansas City Fed on the economics of the payment card markets. Their 
study found, incidentally, that ``privately determined card pricing, 
adoption and usage tend to deviate from the social optimum, and 
imposing a ceiling on interchange fees may improve consumer welfare.'' 
The Kansas City Federal Reserve came up with this finding but the 
credit card companies ignore it. They want another study. They don't 
like a study that says interchange fee reform is good for consumers.
  The Boston Federal Reserve did a study in 2010 and found on average 
every year, each cash-using household pays $149 to card-using 
households.
  The studies go on and on. I will put them in the Record. I see 
several of my colleagues on the floor, but I want to make one other 
point as well. Whenever I talk about Wall Street banks and the credit 
card companies and the costs associated with debit card fees charged to 
American consumers and retailers, the first thing I hear is: There he 
goes again, defending Walmart.
  There is no question about it, Walmart is the largest retailer in 
America. When it comes to the use of credit and debit cards, I am 
certain they have a larger volume of sales from that than any other. 
But let's do some comparison here for a moment. According to 
Forbes.com, in 2010, Walmart, the largest retailer in America, had $17 
billion in profits.
  I ask unanimous consent for 2 additional minutes.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.
  Mr. DURBIN. They had $17 billion in profits and a 4-percent profit 
margin. That sounds like a lot and it is, but not compared to the big 
banks. JPMorgan Chase, one of the largest issuers of debit cards, had 
$17.4 billion in profits last year. That is more than Walmart, 
incidentally. And their profit margin wasn't 4 percent like Walmart, it 
was 15 percent.
  This is the same Chase that has said any regulation of interchange 
fees will force them to raise fees on consumers. One of the most 
profitable banks in America threatens consumers that if they cannot 
charge the interchange fees they want to charge, they are going to 
raise fees on consumers. Isn't that great? ``Your money or your life,'' 
when it comes to Chase. Chase has more profits than Walmart and a 15-
percent profit margin.
  For the record, let me go back and discuss a few more of the studies 
that have already been done on interchange fees. For example, Terri 
Bradford of the Kansas City Fed published a report entitled 
``Developments in Interchange Fees in the United States and Abroad.''
  This report, which was published in 2008, said the following:

       While regulation of interchange fees is still just a point 
     of discussion in the United States, regulation abroad is a 
     reality. In about 20 countries, public authorities have taken 
     actions that limit the level of interchange fees or merchant 
     discount fees. Many of these actions require interchange fees 
     to be set according to cost-based benchmarks, although the 
     cost categories that are eligible for the benchmarks vary by 
     country. In several countries, interchange fees are set at 
     zero.

  Federal Reserve researchers are not the only ones who have studied 
interchange fees.
  In 2006 the Antitrust Law Journal published an article by Alan 
Frankel and Allan Shampine called ``The Economic Effects of Interchange 
Fees.''
  This article found that the interchange fee ``acts much like a sales 
tax, but it is privately imposed and collected by banks, not the 
government. It significantly and arbitrarily raises prices based not on 
technologically and competitively determined costs, but through a 
collective process.''
  And in March 2010, Albert Foer, president of the American Antitrust 
Institute, published a study that found the following:

       Governments around the world have been taking actions to 
     eliminate or severely reduce interchange fees based on 
     studies and investigations that clearly establish that these 
     fees are abuses of market power. Moreover, the results 
     demonstrate that interchange fee regulation works. Despite 
     the protests of MasterCard and Visa and their giant card-
     issuing banks, mandated interchange fee reductions have 
     increased competition in foreign payment card markets and 
     have benefitted consumers through lower prices.

  In short, there have been a large number of studies done about 
interchange fees. And this does not count the enormous amount of 
research, information collection, and analysis that the Fed has done 
since my amendment was enacted last July.
  The problem from the perspective of Visa, MasterCard and the big 
banks is that they simply don't like what these studies have found. So 
they pretend these studies never happened and call for new ones where 
they are guaranteed a more industry-friendly outcome. It is obvious 
that their calls for more study are an effort to delay reform 
indefinitely. The big banks will do anything to prolong the status quo 
and to keep collecting $1.3 billion per month in excessive debit swipe 
fees.
  I want to further address another argument that has been raised 
recently.
  Some have argued that we should not follow through with interchange 
reform because it will only benefit big box retailers. Of course, this 
is not true. Swipe fees impact retailers of all sizes, from the 
smallest mom-and-pop stores to the largest retail chains. They also 
affect universities, charities, government agencies--everyone who 
accepts plastic as a form of payment. And they affect all consumers, 
who pay higher prices at retail because of the cost that swipe fees add 
to every transaction.
  But many still like to portray this debate as a struggle between the 
banks and card companies versus the big box

[[Page 5199]]

retailers. Well, let's look at those big box retailers and compare them 
to the big banks and credit card companies. Some of my colleagues may 
be surprised to learn that the big banks and card companies are 
significantly more profitable than the big retailers.
  According to Forbes.com, in 2010, Wal-Mart, the largest retailer in 
the country, had $17 billion in profits and a 4 percent profit margin.
  Sounds like a lot, right? Well, not compared to the big banks. Last 
year, according to Forbes.com, JP Morgan Chase, one of the largest 
issuers of debit cards, had $17.4 billion in profits--more than Wal-
Mart. And Chase's profit margin was a robust 15 percent.
  This is the same Chase that has said that any regulation of 
interchange fees will force them to jack up fees on consumers. Chase 
has more profits than Wal-Mart and a 15 percent profit margin. Why are 
they pleading poverty and threatening their customers with higher fees?
  Well, what about other giant retailers? How are they doing? Target, 
the well-known retail chain, had profits of $2.9 billion and a 4.3 
percent profit margin last year. Let's compare that to Wells Fargo, 
another giant debit card-issuing bank. Wells Fargo last year had $12.4 
billion in profits and a 13.3 percent profit margin.
  Large retailers would love to have the profit margins of the big 
banks. But they don't. Last year the largest drug store chain, CVS 
Caremark, had profits of $3.4 billion and a 3.6 percent profit margin. 
The largest grocery store company, Kroger, had profits of $1.1 billion 
and only a 1.4 percent profit margin.
  Historically we have seen low profit margins and intense competition 
in the retail sector. According to a June 8, 2009, article in Fortune 
Magazine, Wal-Mart has only an 11 percent market share of the retail 
market, and Target has only a 2.3 percent market share. This shows that 
retail is an intensely competitive sector.
  Let's compare that level of competition to the debit card industry. 
This past Monday, an article on CNBC.com reported that the Visa and 
MasterCard duopoly now control around 90 percent of the debit card 
market.
  It is pretty profitable to be a duopoly. According to Forbes.com, in 
2010: Visa had $3.1 billion in profits and a 37 percent profit margin, 
and MasterCard had $1.8 billion in profits and a 33 percent profit 
margin.
  It must be nice to be a big bank or a credit card company these days. 
Big banks and their card network allies are making money hand-over-fist 
these days while retailers of all sizes are struggling to turn a 
profit. Rising interchange fees are a key part of this equation.
  It doesn't have to be this way. If we can constrain Visa's and 
MasterCard's price-fixing on behalf of the 1 percent of biggest card-
issuing banks, we will reduce the cost of interchange for every 
merchant and other entity that accepts debit cards. Competition in the 
retail sector will mean consumers will benefit through discounts and 
lower prices. Given the large profit margins at the nation's biggest 
banks, they will be able to stay in business once swipe reform is 
completed.
  In fact, we know that banks and card companies can continue to offer 
debit cards profitably with lower interchange rates.
  They did it before--up until the mid-1990s, banks used to offer debit 
cards with minimal or no interchange in the United States.
  And they are doing it right now in other countries around the world, 
where there are thriving debit card industries with very low or 
nonexistent interchange rates.
  I am going to reserve the remainder of my time and let my colleagues 
take the floor. I will return on the subject but I remind my 
colleagues, this amendment, this effort by the Wall Street banks and 
credit card companies to repeal interchange fee reform, is a $40 
billion amendment--$40 billion that will be transferred to the biggest 
banks in America and credit card companies from consumers across 
America. We did the right thing with interchange fee reform. Let's 
stand by it and say to Wall Street, major card issuers, VISA and 
MasterCard, they have had enough. They can get a reasonable fee, but 
not an unreasonable amount out of our economy.

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