The hearing follows the release of a Treasury Department report that concluded that the federal government could save nearly $40 million a year of taxpayer dollars if Treasury were allowed to negotiate interchange rates with Visa and MasterCardsomething it is currently unable to do.
"Credit and debit cards [image-nocss] are rapidly replacing cash and checks in today's economythey account for more than half of all retail sales in America and are used to buy nearly $30 billion a year in goods and services from the federal government," Durbin said. "Visa and MasterCard, which control 80% of the credit and debit card markets, have established a system where they and their big-bank allies take an automatic cut out of every credit and debit transaction. The card giants also block competition, prohibit discounts, and refuse to negotiate fee rates. If we do not take steps to reasonably regulate this system, a dollar won't be worth a dollar anymoreit will be worth whatever Visa and MasterCard want it to be."
Interchange fees are supposedly charged by Visa and MasterCard 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. 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 of these fees went to just ten large banks.
At the hearing, Gary Grippo, testifying for the Treasury Department, said that reform of the current interchange system could save taxpayers nearly $36 million to $39 million a year simply by allowing the federal government to negotiate their interchange rates with Visa and MasterCard and to place reasonable limits on the card networks' unilateral right to raise fees.
Last month, Durbin successfully added a bipartisan amendment to the Senate's Wall Street reform legislation that would require the Federal Reserve to determine if the current interchange fees structure is both "reasonable and proportional" to the real cost of processing a debit card transaction. The amendment would also allow small businesses to offer discounts to consumers when they use cash, checks or debit cards.
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Meanwhile, as the U.S. House of Representatives and U.S. Senate begin ironing out the differences in their respective Wall Street reform bills, U.S. Representative Luis Gutierrez (D-Ill.) has announced his support for an amendment authored by Durbin to help reduce the interchange or "swipe" fees that small businesses pay on every credit-card and debit-card sale. Durbin's amendment was included in the Senate's Wall Street reform bill, but was not included in the House-passed bill.
"Higher swipe 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. Swipe fees need to be kept at a reasonable level so working Americans don't get shortchanged."
Gutierrez said, "I will work with Senator Durbin and conferees to make sure the amendment that is finally adopted brings fairness to our electronic payments system while avoiding unintended consequences for community banks, credit unions, and consumers."
Gutierrez is Chairman of the House Subcommittee on Financial Institutions & Consumer Credit and a member of the conference committee charged with negotiating the final House/Senate compromise Wall Street reform bill. The bill will bring accountability to Wall Street through the strongest consumer financial protections in the nation's history.
Durbin and Gutierrez said the current interchange system is unsustainable for America's business and consumers and profoundly affects America's charities, government agencies, universities and other entities that accept cards as a form of payment.
"There is virtually no competition and no recourse for merchants exploited by the rate structure and fees mandated by Visa and MasterCard," said Durbin.
In a normal market, banks would compete with one another to win merchant business by lowering swipe fees to cover only the processing costs. But the credit- and debit-card markets are not normal markets. Visa and MasterCard unilaterally set swipe fee rates that apply to all banks within their card networks and the credit card giants do not allow banks to compete to reduce rates, nor do they allow banks to negotiate with merchants over rates.
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.
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