Durbin Sends Letter to Wall Street Reform Conferees on Interchange Amendment
[WASHINGTON, D.C.] –
In a letter to the Senate Conferees for the recently passed Wall Street
reform bill, Assistant Senate Majority Leader Dick Durbin (D-IL)
pressed members to include his amendment to help reduce the interchange
fees that small businesses pay on every credit and debit card sale.
Durbin’s bipartisan amendment, which passed the Senate by a vote of
64-33, would enable small businesses and merchants to lower their costs
and provide discounts for their customers.
“My amendment would help reform a card industry that has been constructed by Visa and MasterCard to produce large benefits for the biggest banks at the expense of Main Street businesses and consumers. The amendment has been carefully crafted to address anti-competitive elements in the interchange fee system while preserving the ability of small banks and credit unions to compete with big banks in issuing cards. This amendment clarifies what was already true: the Wall Street reform bill is good for small businesses and good for consumers. I urge you to retain this amendment in the conference report.”
Durbin also asked the Senate Conferees to include in the conference report a “strong consumer financial watchdog that will empower families and small business owners to make educated choices when they select mortgages, credit cards, and other loans.”
Interchange fees are supposedly charged by Visa and MasterCard in order to cover the cost of processing a credit or debit card transaction. However, Visa and MasterCard continue to raise interchange fees even though processing costs have decreased. High interchange fees are yet another way that banks and credit card companies hurt small businesses by charging fees that cut into already tight profit margins.
An estimated $48 billion in interchange fees were charged by credit and debit card networks in 2008 – this money came out of the bottom line of small businesses and merchants across America, and 80 percent of this money went to just ten large banks.
Additional information about the Durbin amendment and a copy of today’s letter are attached.
May 25, 2010
Chairman Chris Dodd
U.S. Senate Committee on Banking, Housing, and Urban Affairs
534 Dirksen Senate Office Building
Washington, DC 20510
Chairman Barney Frank
House Financial Services Committee
2129 Rayburn House Office Building
Washington, DC 20515
Dear Chairmen Dodd and Frank:
Thank you for your leadership in passing strong Wall Street reform bills out of each of your chambers. We are now very close to holding Wall Street accountable for their practices and providing consumers and small businesses with the strongest financial protections in our nation’s history.
As you prepare for the conference committee negotiations, I strongly urge you to include two critical provisions in the final conference report that will help small businesses and consumers prosper.
First, I urge you to include in the conference report my amendment to reduce the interchange fees that small businesses and merchants are charged every time they accept a debit card for a transaction. This amendment, which passed the Senate with 64 votes, will enable small businesses and merchants to lower their costs and provide discounts for their customers.
My amendment would help reform a card industry that has been constructed by Visa and MasterCard to produce large benefits for the biggest banks at the expense of Main Street businesses and consumers. The amendment has been carefully crafted to address anti-competitive elements in the interchange fee system while preserving the ability of small banks and credit unions to compete with big banks in issuing cards. As you know, the amendment does not change the fee rates that Visa and MasterCard have established for small banks, nor does it permit merchants to discriminate against small bank issuers. Only if Visa and MasterCard decide to unilaterally cut small bank interchange rates and rescind their own operating rules that currently prohibit discrimination between card-issuing banks would small banks and credit unions experience interchange reductions or discrimination. The fact that Visa and MasterCard are threatening to do just that highlights the very problem that my amendment seeks to address: when it comes to debit cards, Visa and MasterCard set all the rules, fix all the interchange rates, and hold all the cards.
My amendment was endorsed by Americans for Financial Reform in recognition of its importance to Main Street consumers and businesses. When the amendment was approved in the Senate, the Merchants Payments Coalition representing 2.7 million U.S. businesses with 50 million employees announced their support for the entire financial reform bill in the Senate. This amendment clarifies what was already true: the Wall Street reform bill is good for small businesses and good for consumers. I urge you to retain this amendment in the conference report.
Second, I urge you to include in the conference report a strong consumer financial watchdog that will empower families and small business owners to make educated choices when they select mortgages, credit cards, and other loans. As you know, I authored legislation in the last two Congresses that would establish such a regulator, and I know from that experience that the banks will do whatever they can to water down its reach. You will surely face significant pressure to carve out particular lenders, impose delays or vetoes on rulemaking, and hamper enforcement powers. I strongly urge you to resist these pressures. I believe, as you do, that Americans want and deserve a strong voice for their interests that will continually fight back against the tricks and traps that the banks have long used to increase profits unfairly.
I stand ready to assist you if I can help you in any way, and I thank you again for all of your efforts to make strong Wall Street reform a reality.
Senator Dick Durbin
CC: Wall Street reform conferees
Support Durbin Amendment #3989
To Help Small Businesses by Ensuring that Debit Card Interchange Fees Are Reasonable
What the Durbin Amendment does:
- The Durbin amendment would direct the Fed to issue rules to ensure that debit interchange fees are reasonable and proportional to the processing costs incurred. Visa and MasterCard currently charge debit interchange fees of around 1-2% of the transaction amount. These fees are far higher than the actual cost of processing debit transactions, and they mean that small businesses and merchants always get shortchanged when they accept a debit card for a sale.
- The Durbin amendment also prevents card networks like Visa and MasterCard from penalizing sellers for offering discounts to customers. The amendment would allow sellers to offer discounts for customers to use competing card networks and for customers to pay by cash, check or debit card. The amendment would also allow sellers to choose to decline credit cards for small dollar purchases (because interchange fees often exceed profits on such sales).
Why the Durbin Amendment is needed:
- The Durbin amendment is a response to interchange price-fixing by Visa and MasterCard. Interchange fees are received by the card-issuing bank in a debit transaction. However, Visa and MasterCard, which control 80% of the debit market, set the debit interchange fee rates that apply to all banks within their networks. Every bank gets the same interchange fee rate, regardless of how efficiently a bank conducts debit transactions. Visa and MasterCard do not allow banks to compete with one another or negotiate with merchants over interchange rates, and there is no constraint on Visa and MasterCard’s ability to fix the rates at unreasonable levels. Visa and MasterCard constantly raise interchange rates because the more interchange the banks receive, the more the banks will issue cards. Visa and MasterCard receive a fee each time a card is swiped, so rising interchange rates enrich them too.
- Visa and MasterCard have reduced debit interchange rates in other countries while increasing them in the U.S. While Visa and MasterCard continue to raise U.S. interchange rates (which are already the world’s highest), GAO found that “regulators in other countries have worked with Visa and MasterCard to voluntarily reduce their interchange rates.” Just last month, Visa lowered many European debit rates by 60% while increasing many U.S. debit rates by 30%.
What the Durbin Amendment DOES NOT do:
- The Durbin amendment does not affect credit card interchange fees. Some have argued that the Durbin amendment would reduce credit availability by regulating credit card interchange rates. However, the amendment’s reasonable fee requirement only applies to debit cards.
- The Durbin reasonable debit fee requirement exempts banks and credit unions with assets under $10 billion (this includes 99% of all banks and credit unions). Under the Durbin amendment, the requirement that debit fees be reasonable does not apply to debit cards issued by institutions with assets under $10 billion. This means that Visa and MasterCard can continue to set the same debit interchange rates that they do today for small banks and credit unions. Those institutions would not lose any interchange revenue that they currently receive.
- The Durbin amendment would not enable merchants to discriminate against debit cards issued by small banks and credit unions. Visa and MasterCard contractually require merchants to accept all cards within their networks, and the amendment does not change that requirement.
- The Durbin amendment would not have the Federal Reserve set interchange prices. Under the Durbin amendment the Fed would not set debit interchange prices. Instead the Fed would oversee the debit interchange fees set by card networks to ensure that they are “reasonable and proportional” to cost. This is the same “reasonable and proportional” standard that Congress directed the Fed to use to oversee consumer credit card fees in the 2009 Credit CARD Act.
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