[Congressional Record (Bound Edition), Volume 158 (2012), Part 10]
[Senate]
[Pages 13333-13335]
[From the U.S. Government Publishing Office, www.gpo.gov]




                         DODD-FRANK ANNIVERSARY

  Mr. DURBIN. Mr. President, on July 21, we marked the 2-year 
anniversary of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act.
  This landmark law has taken important steps to rein in the Wall 
Street abuses that nearly drove our economy off the cliff in 2008.
  Two of its reforms were particularly important to me. One was the 
creation of the Consumer Financial Protection Bureau- the only agency 
in the Federal Government solely dedicated to looking out for 
consumers' financial interests.
  This agency has already been a game-changer when it comes to curbing 
the tricks in consumer financial products. It is bringing transparency 
and fairness to mortgages, private student loans, and credit cards.
  Last week, the CFPB announced its first ever enforcement action. It 
directed Capital One to pay about $150 million to more than 2 million 
consumers who had purchased deceptively marketed add-on products to 
their credit cards.
  This is a big step forward. It shows there is a real cop on the beat 
when it comes to consumer protection.

[[Page 13334]]

  I am proud of what this agency has accomplished so far, and I look 
forward to seeing it continue its important work for years to come.
  Another important provision in the Wall Street Reform bill was the 
provision I drafted to reform debit card swipe fees.
  The swipe fee is a fee that a bank receives from a merchant when the 
merchant accepts a credit or debit card that the bank issued. This fee 
is taken as a cut of the transaction amount.
  Now, the vast majority of bank fees are set in a transparent and 
competitive market environment, with each bank setting their own fee 
rate and competing over them. That is not the case with swipe fees.
  With swipe fees, the big banks decided they would designate the two 
giant card companies, Visa and MasterCard, to set fees for all of them. 
That way each bank could get the same high fee on a card transaction 
without having to worry about competition.
  And swipe fees are anything but transparent. Most consumers and even 
most merchants have no idea what kind of swipe fee is being charged 
when they use a debit or credit card.
  The swipe fee system became an enormous money-maker for Visa, 
MasterCard, and the banks. They were collecting an estimated $16 
billion in debit swipe fees and $30 billion in credit fees each year.
  Those billions are paid by every merchant, charity, university, and 
government agency that accepts payment by card, and the costs are 
passed on to American consumers in the form of higher prices.
  By 2010, the U.S. swipe fee system was growing out of control with no 
end in sight. U.S. swipe fee rates had become the highest in the 
world--far exceeding the actual costs of conducting a debit or credit 
transaction.
  And there were no market forces serving to keep fees at a reasonable 
level. Merchants and their customers were being forced to subsidize 
billions in windfall fees to the big banks.
  I stepped in and introduced an amendment to the Wall Street reform 
bill that for the first time placed reasonable regulation over debit 
swipe fees.
  My amendment said that if the Nation's biggest banks are going to let 
Visa and MasterCard fix swipe fee rates for them, then the rates must 
be reasonable and proportional to the cost of processing a transaction. 
No more unreasonably high debit swipe fees for big banks.
  The regulatory steps that my amendment proposed were modest. Most 
other countries have gone much further in regulating swipe fees.
  But the banks and the card companies screamed bloody murder.
  My amendment passed the Senate with 64 votes, and it was signed into 
law with the rest of Wall Street reform. And the swipe fee reforms took 
effect last October.
  As it turns out, debit swipe fee reform is working pretty well.
  So far, reform has led to an estimated $7 billion to $8 billion in 
annual debit swipe fee savings for merchants.
  That savings is a real shot in the arm for American businesses that 
have been crushed by ever-rising swipe fees.
  Consumers are also benefiting as savings are passed along from 
merchants through competition.
  After reform took effect in October, we saw a massive level of 
retailer discounting that extended beyond the usual holiday season 
discounts.
  And according to a USA TODAY article from May 11, a number of 
individual merchants are offering debit card discounts for items such 
as gas, furniture, and clothing. This trend is expected to continue and 
to grow.
  Furthermore, the banking industry had claimed that small banks and 
credit unions would be hurt by debit swipe reform- even though all 
institutions under $10 billion in assets were exempted from fee 
regulation.
  As it turns out, small banks and credit unions have thrived since 
reform took effect.
  Why? Because under my amendment, small banks and credit unions can 
continue to receive the same high interchange rates from Visa and 
MasterCard far higher than the rates that their big bank competitors 
receive.
  In May, the Federal Reserve confirmed that exempted banks and credit 
unions were receiving the same average interchange rates they had 
gotten before reform.
  The American Banker newspaper has noted that the ``Small Banks' 
Durbin Shield Worked'' and prominent card industry analyst Andrew Kahr 
noted that the ``Durbin Doomsday Never Came.''
  Credit unions in particular are doing well after swipe reform. Last 
year 1.3 million Americans opened new credit union accounts, up from 
about 600,000 the year before. And credit unions now have a record 
number of members--almost 92 million overall.
  Now, it is important to note that there should be even more savings 
from swipe fee reform to merchants and consumers.
  When the Federal Reserve was writing its final rule, the banks 
lobbied them to weaken the final rule and raise the debit swipe cap 
from 12 to 24 cents. Then Visa and MasterCard promptly jacked up any 
swipe fee rates that were below 24 cents so that this 24 cent ceiling 
became a floor.
  Basically, the banks and card companies lobbied the Fed for a 
loophole, and when they got one, they ran through it.
  This needs to be fixed going forward, and I am confident it will be 
fixed.
  The bottom line, though, is that the swipe fee reform that Congress 
enacted in 2010 has gotten off to a good start. It is working, and it 
is laying a solid foundation for further reforms to improve the credit 
and debit systems.
  I am afraid, however, that while swipe fee reform has made important 
strides in Congress, the big banks and card companies are trying to 
undercut that reform in the courts.
  Recently a proposed settlement was announced in a long-running class 
action lawsuit. This lawsuit had been filed back in 2005 by a number of 
merchants against Visa, MasterCard, and the big banks that issue most 
of their credit cards.
  The lawsuit was over credit card interchange fees and the associated 
rules that Visa and MasterCard impose on merchants. The suit alleged 
that these fees and rules violate the antitrust laws in the way that 
they are set.
  This lawsuit had the potential to bring about important changes to 
the credit card system that would have promoted transparency, enhanced 
competition, and helped consumers.
  But the proposed settlement does not do that. In fact, I believe this 
proposed settlement represents a capitulation to the Wall Street banks 
and credit card giants. It is a sweetheart deal for them and a bad deal 
for merchants and for consumers.
  The settlement was negotiated in secret between Visa, MasterCard, the 
big banks, and the attorneys representing a small number of merchants. 
The vast majority of merchants had no idea what was in the proposed 
settlement until it was unveiled.
  The terms of the settlement include a $6 billion dollar payout from 
Visa, MasterCard and the banks to the plaintiff merchants. That is a 
large number it is nearly twice as much as the previous record payout 
in an antitrust case. And it is a clear sign that the card companies 
knew that their fees were unreasonably high.
  But, $6 billion is only 2 months worth of credit card interchange 
fees. And the settlement does not prevent Visa and MasterCard from 
simply jacking up their fees even higher than before.
  The settlement does nothing to change the anticompetitive fee-fixing 
that Visa and MasterCard do on behalf of their member banks. In fact, 
it gives Visa and MasterCard broad and permanent legal immunity to 
continue doing exactly that in the future.
  Also, the settlement not only binds the merchants who are parties to 
it, but it also binds every single American merchant, charity, 
university, and State or local agency that accepts a Visa or a 
MasterCard today or in the future.
  It bars all of them from ever bringing a legal claim in the future 
against Visa, MasterCard, or the big banks relating to any swipe fee, 
other merchant fee, or network rule, no matter how unfair or 
unreasonable the fees or rules may be.

[[Page 13335]]

  And this settlement gives Visa and MasterCard legal immunity not just 
for credit cards, but also for debit cards, and prepaid cards and 
mobile payment systems.
  The extent of the free pass Visa and MasterCard would get under this 
proposed settlement is breathtaking. No wonder the banks and cards were 
so quick to come out in favor of this settlement. And no wonder Visa's 
stock hit an alltime high the next business day.
  Now, the proposed settlement would make some temporary changes to 
Visa's and MasterCard's rules. But in my view, these proposed changes 
will be ineffective in reining in Visa and MasterCard's unreasonable 
fees.
  The bottom line is that this proposed settlement does not make our 
credit card system better.
  Instead, it gives Visa and MasterCard free reign to carry on their 
anticompetitive swipe fee system with no real constraints and no legal 
accountability to the millions of American businesses that are forced 
to pay their fees.
  This is a stunning giveaway to Visa and MasterCard, all for a payout 
of a mere 2 months worth of swipe fees.
  This is a bad deal, but it is not a done deal. The merchant 
plaintiffs still have to decide if they will support it, and the court 
must approve it. Several plaintiffs--the National Association of 
Convenience Stores, the National Grocers Association and the National 
Community Pharmacists Association--have already rejected the deal.
  Now, I am not a party to this lawsuit, but I care deeply about making 
the credit and debit card systems in this country more transparent, 
more competitive, and more fair.
  I have worked hard over the years to make sure that merchants and 
consumers do not get nickled and dimed to death with hidden and 
unreasonable fees from Visa and MasterCard, and we have made great 
strides.
  That is why I am speaking out about my concerns with this proposed 
settlement. I know that Visa, MasterCard, and the banks are thrilled 
with this settlement, but this is not a settlement I would agree to.
  I hope that the remaining merchant plaintiffs will review the 
proposed settlement carefully and think hard about whether it will be 
good for the future of our credit and debit card systems. They should 
not be anxious to sign away that future and settle for a bad deal.

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