Restoring American Financial Stability Act of 2010 - Continued

Floor Speech

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Mr. DURBIN. Mr. President, I am hoping that later this afternoon there will be a unanimous consent request that relates to an amendment I have introduced, amendment No. 3989, and I wish to take a few minutes now since there is no one else seeking recognition on the floor to describe this amendment in the hopes that when it comes up later, we can move to it and to a vote very quickly.

I have spoken on the floor of the Senate several times about the amendment because it is complicated in one respect. This amendment relates to the fees charged by credit card companies such as Visa and MasterCard to the retailers and businesses that accept the credit cards. So if you are a customer of a shop and you purchase something, you present a credit card. There are then two transactions taking place, at least. One transaction is between you and your credit card company, because you put the credit card out there and you have to pay the bill later on. The other transaction relates to the business, the shop that accepts your credit card. By accepting your credit card, they also accept an obligation to pay the credit card company or the bank issuing the credit card. It is called an interchange fee. There is another one called a swipe fee. So the credit card company is getting paid both ways. They get paid by the customers who pay interest on outstanding balances on their credit cards, and they get paid by the retail establishments that accept the credit cards. The credit card companies have a lucrative business going on both sides of the transaction.

This amendment I am speaking about relates not to you as a customer owning a credit card, but rather to the shop or retail establishment that accepts the credit card. What is a reasonable amount for them to pay?

There are two major types of credit cards. One is a credit card and the other is a debit card. A credit card is basically that. You are buying on credit with the promise to pay when your monthly bill comes around. The debit card is different because it takes the money directly out of your checking account and gives it to the shopowner. They are different in that, No. 1, there is more risk, because people may not pay their credit card balance at the end of the month, so risk is associated with it; and in the other there is very little, if any, risk. If there is no money in the checking account, then it isn't going to be paid to the shopowner. It is a very simple transaction much like writing a check and the bank honoring the check.

My amendment addresses the interchange fee. That is the amount paid by the retail establishment to the credit card company when a customer presents a credit card.

The two major credit cards in America are Visa and MasterCard. They account for over 80 percent of the credit and debit card business in the United States. They are the giants in America. There are others--Discover, American Express, and others. But the two, Visa and MasterCard, are the two big kids on the block. They have established legal arrangements with the businesses that accept their credit cards. It is those legal arrangements we are questioning with this amendment which I am going to propose later in the day.

This amendment will help small businesses, merchants, and consumers by providing relief from high interchange fees for debit card transactions. We are focusing on debit card transactions because those are the ones that have much less, if any, risk involved to them.

On the floor of the Senate, we are working on a bill to prevent the big banks from basically rigging the financial system in a way that helps Wall Street and hurts the shops on Main Street. If we are going to look at the rigged financial systems that hurt small businesses, we have to include the credit and debit card industries.

Credit and debit cards are rapidly replacing cash and checks in the American economy. There are over 1 billion credit and debit cards in America. Think of that: 300 million people and 1 billion credit and debit cards. That gives you an idea of the number of cards people own.

Last year, Americans conducted $1.7 trillion in transactions on credit cards and $1.6 trillion on debit cards, which are becoming more and more popular. Credit and debit cards are now used in more than half the retail sales in the United States of America. Yes, being able to pay with plastic is a great convenience, but there is another reality. The shift from cash and checks to credit and debit means that the way we do business in America is increasingly falling under the control of these two giants of the credit and debit card industry--Visa and MasterCard.

These card networks dominate the credit and debit industries, as I mentioned earlier. They are used in 80 percent of all such transactions. Unfortunately, these two companies are looking for profits, and they are not always looking out for the best interests of the merchants, the small businesses, the retail businesses or the consumers. Interchange fees are a classic example.

A lot of people in Congress do not want me to bring up this issue. They have told me this is the wrong bill to talk about it. I think not. I tried to bring it up under credit card reform and they said: No, Senator Durbin, that is the wrong bill. Now I want to bring it up on the Financial Stability Act, and they say: No, it is the wrong bill. I do not think it is. I do not think there is a right bill with an issue that is this controversial and complex. But it is an important enough issue that we should address it and we should vote on it.

Visa and MasterCard require interchange fees every time someone uses a debit or credit card. The fees range from 1 percent to 3 percent of the amount of the transaction. It is a convoluted system. Visa and MasterCard charge interchange fees to the merchants, but instead of keeping the money, they pass the money to the banks that issue the Visa and MasterCard. Why do they do this? Some of it is to help the banks cover the cost of conducting the transaction. Most of it is to induce banks to issue more Visa and MasterCard credit cards.

Around $50 billion in interchange fees were collected in 2008, with about 80 percent of that money going to 10 of the largest banks in America--80 percent of it. The card-issuing banks use this interchange revenue to pay for ads, to offer rewards, to issue more cards. Not surprisingly, the revenue also helps banks make large profits and give bonuses to their CEOs. Banks love the money, and they love the current interchange system.

As interchange fees go up, it means banks get more money to issue more cards and increase their profits. Rising interchange fees also benefit Visa and MasterCard because it means more cards will be issued, and with each card comes another fee, called a network fee, every time the card is used.

What a great system--as long as interchange fees are increasing, both the card networks and the banks could not be happier.

The troubling thing about interchange fees is they are deducted from every transaction left for the seller. This is very different from cash and check systems. When a business makes a cash sale, it gets full payment in hand, and the Federal Reserve requires the checks clear at their full face value. So a $100 sale by cash or check is a $100 sale. But when a business makes a $100 sale by credit or debit card, the banks and their card networks take a cut. The business may end up with only $98 out of $100 that is on the debit card, maybe less. The business is getting shortchanged the actual face value of the transaction.

To make up for interchange fees, businesses are forced to raise their prices, cut back on expenses or something such as that. They may even cut back on employees to keep up with these interchange fees. In a normal market, you see banks competing with one another to do business with the restaurants, shops, and the merchants. With that competition, things would be a lot better. But, in fact, the real world of credit cards with the two giants, Visa and MasterCard, is a world where there is little or no competition.

The credit and debit card markets are not normal. Visa and MasterCard unilaterally set interchange fee rates that apply to all banks within their card networks. There is no negotiation between the banks and merchants over reducing interchange rates. Individual businesses in New Hampshire, Illinois, New York, and all across America have no bargaining power with these giant credit card companies. They set the rules, they fix the fees, take it or leave it.

Visa and MasterCard have every incentive to continue to raise interchange fees because that additional revenue makes it more likely banks will issue more cards.

What can businesses do to stop these rising interchange fees? Almost nothing. Some--very rarely--businesses say they do not accept credit or debit cards, but the vast overwhelming number of businesses do. They have to. It is part of doing business in America.

Visa and MasterCard have 80 percent of the credit and debit market. Merchants have to use them. They tell the merchants: If you want to take our card, you live with the fees we charge. That is not a competitive situation at all.

This current system is not sustainable. If left alone, it is going to get worse for small businesses that face higher fees, for consumers who face higher prices, and for everyone but the banks and credit card networks.

Here is the most unbelievable part. Businesses in every other country in the world get a better interchange deal from Visa and MasterCard than businesses in the United States of America. I told that to someone, and they said: It sounds like pharmaceutical drugs, where you can buy the U.S. pharmaceutical drug more cheaply in Canada, Mexico, and Europe. It is the American consumers paying more.

The same thing is true when it comes to Visa and MasterCard. They charge American businesses higher interchange fees than they charge businesses around the world. Visa and MasterCard already charge the highest interchange rates in the world to American businesses, and the rates keep going up.

There was a GAO report last year. It found that Visa and MasterCard--listen to this--had voluntarily reduced the interchange fees on businesses in other countries. Just last month, Visa voluntarily lowered many of its European debit rates by 60 percent--unilaterally lowered them by 60 percent. What happened in the United States? They raised the fees by 30 percent on American businesses trying to fight their way out of this recession.

These huge credit card companies had some sympathy for Europe but not for America. That is unacceptable, and we need to do something about it. That is why I offer this amendment.

The amendment requires that debit card interchange fees be reasonable and proportional. I do not pick a number. I do not set a fee. We want to make sure they are proportional and reasonable to the cost incurred in processing the transaction.

Debit card transactions are fundamentally different from credit card transactions. All that happens in a debit card transaction is you deduct money from your bank account. It is akin to writing a check. That is why debit cards are advertised as check cards.

Right now in the United States, there are zero transaction fees deducted when you use a check. The Federal Reserve does not allow transaction fees to be charged for checks. But when it comes to debit cards, Visa and MasterCard charge high interchange fees just as they do for credit. Why? Because they can get away with it. There is no regulation, there is no law, there is no one holding them accountable.

An estimated $20 billion was collected from businesses and consumers across America in debit interchange fees last year--$20 billion. That money comes from the bottom line of every small business in every town in America that accepts payments by debit card.

My amendment will bring some reasonableness to the system. It tells the Federal Reserve to ensure that debit fees are reasonable and proportional to cost and not just a way of generating huge profits at the expense of small businesses. If we can reduce debit interchange fees to a reasonable level, it would be similar to a tax break on every debit card sale a merchant makes. Think how much that would help small businesses on Main Street.

One of my colleagues said: Even if the businesses save money and do not have to pay more to the credit card companies, what makes you think they are going to give the consumers a break with it? They may take it in profits. They can. There is no way to police that.

I just had a press conference with the National Association of Convenience Stores. We know them as the small shop on the corner that has some groceries and maybe candy bars, slurpies--whatever you want to stop and buy. It also turns out these convenience stores sell 82 percent of the gasoline sold in America. They are part of the same association.

I said to the man who ran the association: What guarantee do we have, if we reduce the amount you have to pay the credit card companies, that the consumers will feel it? He said: We are the only business that posts prices right out on the sidewalk for all the motorists to see of our most popular
item, our gasoline. We fight over pennies. If we can reduce it a penny or two a gallon, we are going to attract more customers. If we can save money when it comes to these interchange fees, it puts us in a more competitive position to bring in more customers to buy gasoline. That is one side of the argument that could inure to the benefit of the consumers. There are no guarantees.

In the world I am talking about, you get to shop around. As the customer, you pick the convenience store, you pick the grocery store, you pick the prices. When it comes to the owners of the store using credit cards, they do not get to shop. They get a ``take it or leave it'' from MasterCard and Visa and have no bargaining power whatsoever.

Many Senators are worried about community banks that also issue credit cards. One thing I hear over and over from my colleagues is we do not want to hurt smalltown banks, regional banks, banks that are not the big boys on Wall Street that issue credit cards. That is why I amended my amendment and said we will exempt all banks with less than $10 billion in assets. If you have more than $10 billion in assets, it would be hard to call you a community bank. You are a much bigger operation.

Under my amendment, Visa and MasterCard could continue to set the same debit interchange rates they do today for small banks and credit unions. Ninety-nine percent of banks, 99 percent of credit unions have assets of less than $10 billion. Of all the credit unions in the United States, only three have assets over $10 billion.

One of my colleagues said: I am very close to the credit unions. I say to my colleague: I am sure you are also close to the small businesses in your State, and in this situation, 99 percent of the credit unions, virtually every credit union in your State would be exempt from this law, but your small businesses may benefit from it because the largest banks have the largest impact on credit card interchange fees.

My amendment would subject the biggest banks in America, the ones that issue the vast majority of debit cards and get the vast majority of interchange fees, to a reasonable fee requirement.

I hear the so-called independent community banks of America oppose my amendment. I could not understand it. If I exempted banks with less than $10 billion, that would exempt 99.8 percent of all of the so-called community banks in America. Why do they still oppose it? I have learned why. The Independent Community Bank Association is a major issuer of credit and debit cards. They are one of the top 25 credit card issuers in the United States and are the 23rd largest debit card issuers. They make a lot of money off interchange fees. They do not have clean hands in this debate. They are, in fact, conflicted in this debate. They are not arguing on behalf of small banks. Sadly, they are arguing on behalf of their own trade association credit cards and the fact they receive these generous interchange fees.

ICBA, so-called Independent Community Bankers Association, profits from the unfair swipe-fee system just like the biggest banks in America today. That is a conflict of interest.

Is this Washington trade association truly representing small banks that will get higher interchange fees than the big banks under my amendment or is it just interested in protecting its own revenue stream?

I called back to some of my friends in downstate Illinois, where I come from--small town, small city America--and I talked to them about this. I said: I am exempting banks with assets of less than $10 billion.

They said to me: Well, that is perfectly reasonable. It won't touch any community banks you know in downstate Illinois.

That is an indication to me that this trade association out here is not speaking--really speaking--for community banks when they say they oppose this amendment as amended.

My amendment also aims to make sure Visa and MasterCard can't block merchants from offering discounts to their customers. For example, Visa has a provision in its contract with all of the businesses that accept it that the business cannot offer a customer a discount to use a competing credit card, such as a MasterCard. MasterCard has a similar provision. So they are protecting one another. You can't say, for example, that your shop prefers Visa cards because the Visa card charges you less as a business. They prohibit that back and forth.

Some people say: Well, maybe that is okay. Would it be okay if we take it to the next example: It is like Coca Cola saying that a store can sell Coke but only if it agrees not to sell Pepsi at a lower price, and it is like Pepsi saying the same thing. Who loses in that deal? I can tell you who loses--the customer, because there is no competition and the business because it does not attract the customers with competition and lower prices. Translate that into credit cards, and that is what Visa and MasterCard are doing today. My amendment strips these provisions from Visa and MasterCard contracts so merchants can offer discounts without penalty.

My amendment would also allow merchants to offer discounts for customers who pay by cash, check, or debit card as opposed to credit cards. Sometimes, Visa and MasterCard threaten to fine merchants who offer discounts for these cheaper forms of payment. My amendment would end those threats once and for all. This type of effort to promote noncompetitive practices should not be allowed, and my amendment would bring it to an end.

Nothing in my amendment would allow merchants to discriminate against cards issued by small banks and credit unions. That was another comment. They said, well, listen, Durbin, if your amendment passes, they will say: This establishment will not accept credit cards from a small bank that issues these cards. We make it express in the amendment that we are offering that you cannot discriminate against the issuer, that is, the bank, of the credit card. You can only say you prefer one network over another because the interchange fees on your business happen to be lower, but you can't pick out banks. You may say: We prefer Visa or MasterCard, but you cannot pick them out by banks.

Interchange fees have real-life consequences on businesses across America. I have been receiving calls and letters from small business owners all over the State asking Congress to fix this rigged interchange system. Last week, my office received petitions signed by 92,000 Illinois consumers seeking to reform credit and debit interchange fees. The amendment has also been endorsed by 203 national and State trade associations representing every type of business you can think of, and it has been endorsed by Americans for Financial Reform, a coalition of over 250 consumer, civil rights, labor, retiree, and business groups.

If you talk to Visa, MasterCard, and the biggest banks, all you will hear is how well the current system is working and how we ought to keep our hands off it. But if you talk to the local grocery store owner or the person who owns the local restaurant in your hometown or the man who owns the gas station or the family who runs a local diner--small businesses and merchants across America--they will tell you stories about dealing with Visa and MasterCard and what it has meant to them in their business.

This afternoon, Art Potash, who owns some grocery stores in Chicago, came by my office. We had a little press conference. He talked about the competitiveness of the grocery business, where the return is usually 1 or 2 percent and he ends up paying 2 to 3 percent back to the credit card companies for people who use credit and debit cards. He is stuck because if he doesn't accept credit and debit cards, he is really trying to fight the tide. More and more people are using them. But he is paying a fee, which is cutting right into the bottom line. With this interchange fee at a more reasonable level, he would be able to expand his business and hire more people. Wouldn't that be a good outcome in an economy where we are desperate to deal with unemployment?

Let's put Main Street above the big banks and credit card companies. I ask my colleagues to help me in passing this amendment.

Madam President, I have received letters and comments from merchants and businesses across the State of Illinois supporting my amendment for interchange reform. I have received them from James Phillip of Phillip's
Flower Shops in Westmont, IL; Robert Jones, president of American Sale patio store in Tinley Park, IL; George LeDonne, owner of LeDonne Hardware in Berkeley, IL; Russ Peters, owner of Mobile Print in Mount Prospect, IL; Jim Dames, owner of Snackers Cafe in Western Springs; George Preckwinkle, a friend of mine and president of Bishop Hardware and Supply, with 10 locations in central Illinois; Paul Taylor, owner of Taylor's Gifts and Bonsai; Rattanaporn Deeudomchan, owner of the King and I Thai Restaurant in Oak Park; Yvonne Francois, who owns Queenie's Court, a restaurant in the food court at the Ford City Mall in Chicago; and John Gaudette, director of the Illinois Main Street Alliance, representing 450 small businesses across the State.

I ask unanimous consent to have printed in the Record at this stage of the debate some of the comments and letters which have been sent to me.

There being no objection, the material was ordered to be printed in the Record

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Mr. DURBIN. Madam President, I see one of my colleagues on the Senate floor, so I am going to yield. And I say to my colleagues, I am hoping this amendment comes up this afternoon. I will take less time to describe it then, but I wanted to use this time to put my full statement in the Record. I will just say to my colleagues that there won't be another amendment that we will consider this week or in the near future of such importance to small businesses across America. Let's stand up for these small businesses and give them a fighting chance against giants in the credit card industry. It is only fair, and it is a good way to revive this economy and put people back to work.

Madam President, I yield the floor, and I suggest the absence of a quorum.

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Mr. DURBIN. Mr. President, I ask the Chair to inform me when I have 1 minute of my 5 minutes remaining.

I think this is an amendment that is well known to my colleagues. I have spoken on the floor several times. It is about the interchange fees charged to small businesses across America for the use of credit cards.

This amendment does the following things: It directs the Federal Reserve to ensure that debit fees on debit cards are reasonable and proportional to processing costs; it stops Visa and MasterCard from imposing any competitive restrictions; it ends prohibitions on discounts for use of different network cards; it ends prohibitions on discounts for cash, debit, or credit; and it ends prohibitions on minimum purchase levels for paying with a credit card.

It does not affect credit card interchange rates. We do not establish a rate. That is left entirely to the Federal Reserve to review. We do not allow discrimination against small banks or credit unions. The modification specifically prohibits any discrimination against the issuer of a credit card. A merchant may decide to favor one network over another but cannot favor one bank over another that issues a card. So there can be no discrimination against a credit union, community bank, or a large bank, for that matter. It doesn't set interchange prices.

By putting a $10 billion threshold in terms of the banks issuing the cards, we literally exempt 99 percent of all banks and credit unions from the application of this law. Still, just going for the largest banks in America--86 banks in America--we will cover 65 percent of all the credit and debit transactions in this country. So it is a significant amendment, and it protects the community banks and the credit unions.

I will tell you that I am very concerned and disappointed by the so-called Independent Community Banks Association, which continues to oppose this amendment despite my best efforts to exempt virtually all of their members from being covered. I understand they have a conflict of interest because they are in the top 25 issuers of credit and debit cards in the United States. They make a lot of money under the current situation. They may not want to change it, but it is not fair to small banks in Illinois and across the Nation for them to speak to this issue when they have this conflict of interest.

The second thing I want to say to the credit unions is that there are 8,200 credit unions in America, and all but 3 are exempt from this law--99.999 percent of credit unions are exempt from this law. For them to be opposing it because of three of the biggest credit unions in America is unfair to the rest of their members and certainly unfair to the merchants who do business with them every day.

This is the single most important amendment for small business and retail business in America that we will consider on this bill. In a time of recession, when we need small businesses to step up and create jobs, this is a way to move forward.

Members have heard from all across the country, from small businesses and retail merchants who are asking for some fairness, some justice when it comes to these major credits cards that literally dictate the terms of their agreements with these small businesses. I urge my colleagues to support the Durbin amendment.

Mr. President, I am going to reserve the remainder of my time.

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Mr. DURBIN. I yield to the Republican side, if there is opposition to the amendment.

Mr. KYL. Mr. President, as far as I know, there is no one else on our side wishing to speak; therefore, we can yield back time of the minority.

Mr. DURBIN. I say to my colleagues, I know this is a complex and in some ways a controversial amendment. But I can't think of a better way for us to establish a reasonable standard that debit cards, which are now becoming more common and are equivalent to a check, are going to be charged against the merchant that honors the card only in a reasonable and proportional way by the same agency we used under the consumer credit card reform bill of just last year.

I urge my colleagues, if they are listening to small businesses across America, struggling to survive, trying to add new employees, give them a helping hand by voting for the Durbin amendment so they can have reasonable charges for the use of credit cards and debit cards at their establishment. I urge the passage of this amendment and I yield the remainder of my time.

I ask for the yeas and nays.

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