Durbin Statement on Release of Proposed Interchange Rule

[WASHINGTON, D.C.] – Assistant Senate Majority Leader Dick Durbin (D-IL) released the following statement today after the Federal Reserve Board released proposed rules to implement interchange fee reform. Durbin included a bipartisan amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act that directed the Fed to establish standards to ensure that debit interchange fees are “reasonable and proportional” to the real cost of processing a debit card transaction.


“Today’s draft rule from the Federal Reserve makes it clear that big bank interchange rates: overcharge businesses and consumers in America by at least three times the average cost of processing; that the reforms called for by my amendment will save retailers, charities and consumers up to $10 billion each year; and the changes we had to enforce by law in the U.S. are being voluntarily implemented by mega-banks and card giants in Europe and other countries. We will carefully review the Fed’s detailed proposal and continue to work to make sure it is consistent with the clear intent of the law.”


Interchange fees are fixed by Visa and MasterCard and paid to card-issuing banks, supposedly in order to cover the cost of processing a credit or debit card transaction. These fees continue to rise even though processing costs have decreased, and each bank receives the same network-established interchange rate no matter how much that bank actually spends to process transactions. Nearly $50 billion in interchange fees were charged by credit and debit card networks in 2008 – coming out of the bottom lines of small businesses, charities and government balance sheets. Of these fees, 80 percent went to just ten large banks.


The Durbin amendment was passed by the Senate 64-33 in May of this year during the Senate’s consideration of the Wall Street reform bill. The amendment was agreed to after Congress held six hearings on the issue of interchange fees and their effect on consumers. A modified version of the Durbin amendment was later agreed to by House and Senate negotiators and included in the final bill.


Under either approach, the Fed would prevent networks and issuers from restricting a merchant’s ability to direct the routing of the transaction over a particular network.


Earlier this year, the Department of Justice (DOJ) concluded a multiple year investigation into the issuance of interchange fees by credit card giants Visa and MasterCard and concluded that the rules surrounding interchange fees exclude competition and are unfair to consumers and merchants alike. DOJ, Visa and MasterCard reached a settlement that would require the two companies to allow merchants to offer discounts, incentives, and information to consumers to encourage the use of payment methods that are less costly. Durbin’s statement on the settlement can be found here: https://www.durbin.senate.gov/showRelease.cfm?releaseId=328137


U.S. interchange rates are the highest in the world. Just last week the EU agreed to drop antitrust charges against Visa after the company agreed to lower debit interchange rates. Canada also has launched anti-trust investigations over Visa and MasterCard’s interchange fees and practices.


Today’s public release of the proposed rules is the first step in the regulatory process and is not the issuance of final regulation. Final regulations will be published in April of next year.