Durbin Statement On His Debit Card Swipe Fee Amendment

[WASHINGTON, D.C.] – Assistant Senate Majority Leader Dick Durbin (D-IL) issued the following statement after the Senate approved his amendment to help reduce the swipe fees that small businesses pay on every credit and debit card sale by a bipartisan vote of 64-33:


“Wall Street reform is really about two things: holding the big banks accountable for how they operate and empowering consumers to make good financial choices. Passage of this amendment is a win for the public on both fronts.


Passage of this measure gives small businesses and their customers a real chance in the fight against the outrageously high “swipe fees” charged by Visa and MasterCard. It will prevent the giant credit card companies from using anti-competitive practices, allow merchants to offer discounts to their customers and restore common sense and fairness to this broken system.


By requiring debit card fees to be reasonable, and by cleaning up Visa’s and MasterCard’s worst abuses, small businesses and their customers will be able to keep more of their own money. Making sure small businesses can grow and prosper is vital to putting our country back on solid economic footing.”


Swipe 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 swipe fees even though processing costs have decreased. High swipe 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 swipe 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 is attached.


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.