Durbin Moves to Bring Down Credit Card Costs

Introduces Legislation to Reform Credit Card Interchange Fees

[WASHINGTON, D.C.] – Assistant Senate Majority Leader Dick Durbin (D-IL) today introduced legislation to allow large and small businesses to negotiate directly with credit card companies to reduce the interchange fees that are charged on every credit card transaction.

“Higher interchange fees mean higher costs for retailers and consumers,” said Durbin. “Every time you make a purchase with plastic, the bank that issued your credit card gets a cut of the sale amount. American businesses and consumers are getting nickled and dimed by the big banks, who end up making billions from these hidden fees. Interchange fees need to be fairly and transparently negotiated between the merchants and the credit card companies so working Americans don’t get shortchanged.”

Interchange fees are supposedly charged in order to cover the cost of processing a credit card transaction. However, reports show that the cost of credit card processing is steadily decreasing in the United States, while interchange fees continue to rise. High interchange fees are yet another way that banks and credit card companies take a bite out of consumers’ wallets, along with high interest rates and other fees imposed on credit card holders.

There is no meaningful competition or negotiation involved in the setting of interchange fees, as major card companies like Visa and MasterCard simply set non-negotiable interchange fee rates for all the banks and retailers that participate in their card systems. These rates result in increased revenue for the card issuer but drain the bottom lines of retailers and raise prices for consumers. Retailers are forced to abide by these fees, because credit and debit cards are used for over 40% of all transactions in the United States and most retailers cannot stay in business if they do not accept these cards.

Credit card interchange fees average around 2 percent of the sale price, and an estimated $48 billion in interchange fees was collected in 2008. Electronic payment system markets are highly concentrated, with just two card networks, Visa and MasterCard, controlling over 70% of the U.S. credit and debit card market.


Durbin’s Credit Card Fair Fee Act of 2009 would safeguard consumers and retailers by preventing credit card companies from charging unfair fees through an unfair process. Recognizing that certain widely-used electronic payment systems have become nearly as important to our consumer economy as cash, the bill would ensure that retailers have access to these electronic payment systems at fair rates and terms. The legislation does so by giving the banks and companies that provide credit cards, and the merchants that accept the cards as forms of payment, strong incentive to sit down together and work out a deal on interchange fees and terms that both sides can live with.

Under Durbin’s bill, retailers would be permitted to engage in collective negotiations with the providers of widely-used electronic payment systems over the fees and terms for access to that system. The bill would establish a mandatory period for negotiations between the retailers and providers, and if the negotiations do not result in a voluntary agreement, the matter would go to an arbitration-style proceeding before a panel of expert judges appointed by the Justice Department and the FTC.

These judges would investigate the fees, terms, costs and overall market conditions for electronic payment systems. The judges would then order a mandatory settlement conference, and if the settlement conference failed to result in an agreement between the retailers and providers, the judges would conduct a hearing where each side would propose what they think is a fair set of fees and terms. The judges would then select the offer that most closely represented the fees and terms that would be negotiated in a fair and competitive market. The judges’ decision would govern access to the electronic payment system for a period of 3 years.

While the bill contains safeguards to ensure that the judges can only select a set of proposed fees and terms that is fair and pro-consumer, the goal of the legislation is to incentivize the parties to work out voluntary agreements so that the process would never need to approach the point of an arbitration ruling.

This legislation is supported by the Merchants Payments Coalition, a coalition of retailers, restaurants, supermarkets, convenience stores, drug stores, fuel stations and other businesses representing about 2.7 million stores nationwide with approximately 50 million employees.

U.S. House Judiciary Committee Chairman John Conyers (D-MI) recently reintroduced a similar bill, also titled The Credit Card Fair Fee Act of 2009, last week.