[Congressional Record (Bound Edition), Volume 157 (2011), Part 5]
[Senate]
[Pages 5949-5951]
[From the U.S. Government Publishing Office, www.gpo.gov]




                            INTERCHANGE FEES

  Mr. TESTER. Madam President, I rise, once again, on behalf of rural 
America. Many folks do not understand rural America. They often get 
painted in broad brush strokes in a way that does not reflect the 
reality we face. The Montanans who elected me sent me to bring common 
sense to the debate over issues that impact rural America.
  One issue where there is not a lot of common sense is the issue of 
debit interchange. There is also a lot of misinformation out there 
about this issue.
  I have been concerned about the unintended consequences of this 
proposed rule since the Senate voted on the provision last year. That 
is why I voted against the amendment when it came to the floor for a 
vote. Over the past few months, I have been attacked by the big box 
retailers and called just about every name in the book.
  My legislation to study the impact of the Fed's proposed rule has 
been called a bailout. That is pretty interesting, since I was the only 
Democrat in the Senate to vote against both bailouts. Only in 
Washington do people say you are killing a bill by making sure it does 
what we want it to do.
  I certainly do not think the goal of the interchange amendment was to 
engage in price fixing. I do not think folks were trying to hurt 
consumers or small community banks and credit unions. But now we know 
the impact of this provision is far different than the information we 
had when we passed the amendment.
  Now we know that the regulators tasked with implementing this rule 
think it may not work at all. When we passed the amendment, we were 
told small banks and credit unions would receive an exemption from the 
swipe fee rule. Since there has been a lot of misinformation on this 
issue, let me share these comments directly with my colleagues.
  In a Banking Committee hearing in February, Chairman Bernanke 
referred to the exemption for community banks and credit unions, and he 
said:

       We are not certain how effective that exemption will be. 
     There is some risk that the exemption will not be effective 
     and that the interchange fees available through smaller 
     institutions will be reduced to the same extent that we would 
     see for larger banks.

  That means the Chairman of the Federal Reserve--the guy in charge of 
implementing the interchange rule--does not think it will work for 
credit unions or for small mom-and-pop community banks.
  This is common sense. When you set a price cap, big box retailers 
will use their market share to force the little guys to meet the lower 
fee.
  At the same hearing, FDIC Chairwoman Sheila Bair confirmed this, 
saying:

       It remains to be seen whether they--

  These are credit unions and community banks--

     can be protected with this. I think they're going to have to 
     make that up somewhere, probably by raising the fees that 
     they have on transaction accounts.

  That means our credit unions and small community banks will be 
cutting back--cutting back on things such as free checking or ending it 
altogether, charging more for loans, cutting back on services to low- 
and moderate-income folks in rural America.
  Despite being tasked with the job of implementing the small bank 
exemption, the Fed cannot guarantee that the exemption will work in 
practice.

[[Page 5950]]

Because despite what some may say, the Federal Reserve cannot control 
markets. It cannot ensure that this provision will work since market 
forces will drive rates down for the community banks and credit unions.
  No one doubts that rural America's small businesses will be 
significantly affected by regulating debit card interchange fees. Yet 
the true and full effects of this regulation on small businesses are 
not being fully discussed or fairly portrayed.
  This amendment was an attempt to address a problem. But when you 
control prices, as this amendment does, you also invite unintended 
consequences.
  At first, it might make sense that if you reduce debit card swipe 
fees, then small businesses will benefit. But once you take a closer 
look, you find a host of potential problems for small businesses and no 
guarantees that consumers will benefit one lick.
  For instance, a recent study says that only 10 percent of small 
businesses are in retail and in a position to accept debit cards. But 
that same study also says most small businesses have checking accounts 
and use debit cards to pay for things they need to run their 
businesses. These businesses will end up paying more for basic services 
such as checking accounts and they will see more fees and consumers 
will be no better off. In short, this limit is bad for small 
businesses, and it is bad for consumers. Which banking services are 
likely to be more expensive--or disappear entirely--as community banks 
and credit unions seek to make up lost revenue? Well, free checking, 
for one. Millions of Americans have had checking accounts and debit 
cards because they are free. If banks and credit unions are forced to 
charge for these services, many business owners and consumers would 
suffer the consequences.
  Because the Fed's rules do not allow banks to cover the costs of 
debit transactions, banks of all sizes are considering limits on credit 
card purchases. Moms using their debit cards at the grocery store may 
have to limit their grocery purchases to $50 or $100.
  So what is the alternative? Well, put it on a credit card. But that 
is a tough option for struggling families. Low- and moderate-income 
families may not have access to credit or may have already maxed out 
their credit card. Pushing consumers toward credit is not good for 
small businesses either because the interchange fees on credit card 
purchases are higher than those on debit cards.
  In a recent survey, three-quarters of community banks reported 
considering imposing annual or monthly debit card fees. Three-fifths of 
them would consider imposing monthly fees on checking account 
customers. If they start charging folks for just having an account, you 
can bet these folks will not be customers for long. In the long run, 
that will devastate rural America.
  What does that mean for small businesses that rely on those community 
banks and credit unions? Without a doubt, the small businesses and 
communities across Montana rely on community banks and credit unions to 
keep their doors open, to grow their businesses, and to create jobs. 
These Main Street institutions are the backbone of this Nation's small 
businesses.
  In fact, according to a recent National Federation of Independent 
Business report, most small businesses do their banking with smaller 
institutions. Community banks provide the bulk of small business 
lending in rural communities and small business owners receive better 
treatment from community banks. That is because in rural America a 
community bank is part of that community. A handshake still matters, 
and the folks on both sides of the table can look each other in the eye 
and be accountable to one another. We are not going to find that on 
Wall Street.
  Community banks do the lion's share of lending with the youngest and 
smallest of small businesses--those best positioned to create new jobs 
as we merge from this recession.
  Make no mistake about it. The price caps called for by this Durbin 
amendment will lead to fewer debit cards offered by community banks and 
credit unions. It will limit the size of debit card transactions, and 
it will end free checking for small businesses, as they rely on these 
institutions.
  These changes will limit the ability of small businesses to conduct 
daily business. They will increase banking costs and could limit the 
lending capability of smaller institutions. These changes come at a 
time when many small businesses are already fully leveraged and have 
few other options available.
  So what does this mean for small business in Montana?
  For a contractor in Kalispell, it means he will not be able to use 
his debit card to buy lumber. It will mean the end of free checking. I 
know of too many businesses that do not have the option of increasing 
their lines of credit with their bank or that have maxed out a credit 
card weathering this recession. Those are the circumstances folks are 
forced into, and those are the circumstances that limit our economy.
  What will this mean for community banks and credit unions that are 
competing for the business of these small businesses?
  Community banks and credit unions play an instrumental role in our 
economic recovery by providing loans to small businesses so these 
businesses can grow and hire new employees.
  Smaller banks treat small businesses better. But smaller banks do not 
have the means to make up for the lost revenue from this Federal 
mandate, and they do not have the volume to make up this revenue 
elsewhere such as bigger banks do.
  One of the more troubling findings from the NFIB report I referenced 
earlier is the fact that community banks have been losing market share 
nationwide. The report found that the percentage of small businesses 
served by local banks fell from 31 percent to 25 percent between 2009 
and 2010. My concern is that this proposed rule will further harm this 
loss of market share by community banks. It will lead to further 
consolidation in the banking industry.
  Community banks and credit unions simply cannot compete against Wall 
Street unless they provide products such as debit cards. They simply 
cannot make up this revenue elsewhere, and they cannot compete unless 
they provide these services.
  This notion that some have raised that these proposed rules are a 
slam-dunk for small businesses--it is simply false. Unfortunately, this 
is one of the many misconceptions that have been put out there.
  For example, based on statements I have heard, some would have you 
believe we have been working and analyzing the debit interchange issue 
for years, talking about all the hearings we have had on this topic.
  The truth is, however, quite different. There has been just one 
Senate hearing on this issue since 2006, and it was regarding the 
interchange fees paid by the Federal Government. The Judiciary 
Committee has looked at antitrust issues, but they have never addressed 
the ramifications of this amendment--never. No one has been able to 
explain to me why studying the impact of this rule is a bad idea.
  Am I suggesting the debit interchange system is without fault? 
Absolutely not. But we should not move forward with a rule that will 
create a whole new set of problems and will hurt community banks and 
credit unions until we have fully studied the impact. If we do not 
measure twice and cut once, we are bound to create a whole new set of 
problems that will hurt small businesses and consumers.
  I sure would not have stepped into the middle of this fight if I did 
not think it was critical to the survival of rural America, and to the 
jobs and livelihoods of the people who live there. I am in this job not 
because I am known as a guy who stands for big banks or Wall Street--
far from it. I am the guy in my party who voted against TARP and 
against the automaker bailout.
  I am in this job because rural America needs a voice at the table. 
Rural America needs someone on their side, to make sure rural 
communities and Main Street businesses do not get stuck with the short 
end of the stick

[[Page 5951]]

when the Senate makes policies such as this one.
  We need to stop. We need to study. We need to make sure we are doing 
the right thing. Therefore, I ask my colleagues for their bipartisan 
support on a responsible bipartisan bill to delay this rule so we can 
have time to study the consequences of this rule--both intended and 
unintended. Our economy cannot afford to let this go into effect.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Wyoming.

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