Durbin: Senate Passes Reform Bill that Puts Main Street Before Wall Street

[CHICAGO, IL] – American consumers are on track to see the strongest consumer financial protections in the nation’s history as a result of legislation to bring accountability to Wall Street, U.S. Senator Dick Durbin (D-IL) said today.  The Restoring American Financial Stability Act, which was approved by the Senate last night by a vote of 59-39, also includes a Durbin-authored amendment to help reduce the interchange or “swipe” fees that small businesses pay on every credit and debit card sale.

“This bill means no more taxpayer bailouts for Wall Street and no more high-flying bank schemes that can drag down our economy,” Durbin said.  “It contains the strongest financial consumer protections in our nation’s history and empowers consumers to make the best decisions on mortgages, student loans, and auto loans.  It has been a long fight, but it was worth it.  Finally Main Street trumped Wall Street.”

The Wall Street reform bill will create a Consumer Financial Protection Bureau, housed in the Federal Reserve, designed to protect consumers from tricks, traps, shadowy markets and fine print.  The CFPB is modeled after a Durbin proposal to create an independent agency with the sole function of protecting consumers.

“This bureau will finally put a real cop on the beat that would empower consumers to choose between mortgages, credit cards, and auto loans that are designed to win their business by offering consumers a good deal, not one that’s only good for the banks,” Durbin said.  “The bureau will write strong, sensible rules that apply to all lenders evenly, which means no carve-outs for anyone.”

The Wall Street reform bill will make the banks and speculators pay for the costs of their mistakes so taxpayers never again have to bail out these institutions.  Banks and credit card companies will be forced to offer clear terms in plain English.  Consumers will have the information they need to compare rates so they can make the financial choices that are right for them, Durbin said.

“We all have an obligation to take responsibility for our financial decisions,” Durbin said.  “But markets work best when buyers have a clear understanding of the products available, so that they can smartly choose what is best for them.  This Wall Street reform bill will make these markets work for all of us, not just Wall Street.”

The legislation also addresses the rising interchange fees Visa and MasterCard charge small businesses which lead to increased prices for consumers.

“Higher interchange fees mean higher costs for retailers and consumers,” said Durbin. “Every time you make a purchase with plastic, Visa and MasterCard require the merchant to send a cut of the sale amount to the bank that issued your credit or debit card.  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 kept at a reasonable level so working Americans don’t get shortchanged.”

Interchange fees are deducted from the transaction amount, meaning that when a business makes a $100 sale by credit or debit card, the banks and the card networks take a cut out of the sale amount and the business ends up with $98 or less.  To make up for the interchange fees, businesses often either raise their prices or cut back on other expenses, like hiring.  Approximately $50 billion in interchange fees was collected in 2008, with about 80 percent of that money going to just ten big banks. 

“Banks love that money and they love the current interchange system,” Durbin said.

In a normal market, banks would compete with one another to win merchant business by lowering interchange fees to cover only the processing costs.  But the credit and debit card markets are not normal markets.  Visa and MasterCard unilaterally set interchange fee rates that apply to all banks within their card networks.  Visa and MasterCard do not allow banks to compete to reduce rates, nor do they allow banks to negotiate with merchants over rates.  As a result, the interchange rates continue to go up. 

The Durbin interchange amendment would reduce the debit interchange fees imposed on businesses to a “reasonable” level, and would allow businesses to offer more discounts to their customers without threat of penalty from Visa and MasterCard.  This amendment will help Main Street businesses and their customers keep more of their own money.