Nomination Of Elena Kagan

Floor Speech

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Mr. DURBIN. Mr. President, a few weeks ago we considered a Wall Street reform bill which tried to address some of the underlying problems in our economy which led to the recession. It was an ambitious undertaking. The Senate Banking Committee, under Chairman Dodd, led us through a very difficult and lengthy debate over the bill.

Part of the debate included an amendment which I offered relative to what is known as an interchange fee. An interchange fee is the amount of money charged to a business when a customer presents a credit card. So if I go to a restaurant in Chicago and pay for the bill with a credit card, the restaurant is going to have to pay a percentage of my bill to the credit card company or at least to the issuing bank of the credit card. And then I, of course, have to pay the bill when it comes in the mail.

This so-called interchange fee--the charge by the credit card company to the business I am patronizing--is a fee that turns out to be very large and expensive. Nearly $50 billion in credit and debit card interchange fees is collected each year, primarily by the largest credit card companies and by the largest banks that issue those credit cards. This is virtually unregulated. There is no regulation as to the amount charged or collected from these businesses. Visa and MasterCard, which dominate the credit and debit card industries, establish the interchange rates that all merchants and, by extension, their customers pay to banks whenever a card is swiped. So if the restaurant I went to is charged 1 percent, 2 percent, or 3 percent because I presented a Visa card or a MasterCard, that is going to be reflected in the bill I pay. It certainly is going to come off of any profit margin the restaurant might realize as a result of my patronizing it.

Already more than half of the retail transactions in America are conducted by debit and credit cards. Every time someone uses a credit or debit card to make a donation to a charity, Visa and MasterCard require an interchange fee to be paid. There have been exceptions where they have said they will suspend the fees, but by and large, if one makes a donation to the charity of their choice using their credit or debit card, part of the money they think they donated is going to end up in the hands of these credit card companies.

According to a January 14 analysis by the Huffington Post, banks and card companies make an estimated $250 million a year from their interchange or swipe fees on charitable donations. In other words, it turns out that Visa and MasterCard are declaring themselves part of this charitable contribution and taking millions of dollars out of it. I would like to see more of that money go to the charitable purposes for which people donate their money.

The Huffington Post noted that charities such as Habitat for Humanity pay about 2.15 percent of their donation in card fees. St. Jude's Children's Research Hospital, well known and well respected, pays about 2.5 percent in card fees. Is it really necessary for Visa and MasterCard and the big banks to take a cut out of every charitable donation? We are not talking about the cost of the transaction. I will concede the fact that the regular proportional cost of a transaction of using the card is certainly fair for Visa and MasterCard to charge, but they raise that dramatically. There is no way that Visa and MasterCard could justify 2.5 percent if I use my debit card to try to make a donation to St. Jude's Children's Research Hospital. They are literally gaming the system and profit-taking from charities.

In the wake of the devastating earthquake in Haiti in January, Visa, MasterCard, and their member banks voluntarily suspended the collection of interchange fees for some charitable donations for earthquake relief. It seems these companies can survive without charging these fees for charitable donations. They have done it. One bank, Capital One, has decided not to collect interchange on donations made to charity by their cards. I salute them. It is the right thing to do. Why aren't they all taking this position? Why don't they exempt charitable institutions from these issuing bank and credit card fees? I wish other banks were as reasonable when it came to interchange fees and charitable causes as Capital One.

There is another group--universities. They pay a heavy cost in interchange fees. They lose a fortune in interchange when people use cards to pay for things such as tuition and housing.

After my amendment passed the Senate, I received a letter from the American Council on Education and eight other major university associations thanking me. The letter said:

As a result of your amendment, we believe that colleges and universities will see reduced debit card costs which they will be able to pass on to students and their families through lower costs as well as increased resources for institutional grant aid and student services.

The reach of credit cards is unlimited in our economy. So are the greedy hands of the credit card companies and their issuing banks when it comes to these interchange fees. When I said in this amendment that we really want those fees to reflect the reasonable and proportional cost of processing the transaction, they screamed bloody murder because there is a lot of money being made--some $50 billion across the economy from these fees. Wouldn't it be great if we could enable colleges and universities to lower the cost students have to pay and put more resources into financial aid?

The letter also said that under my amendment, ``colleges and universities will be able to offer discounts to students and their families for payments made with checks and debit cards.'' That is another thing they don't like to talk about. These two major credit card giants, Visa and MasterCard, really have a sweet deal. They basically coordinate their policies. It is as if Coke and Pepsi reached an agreement and said to your local store: Don't you dare offer that other product at a discount. That is virtually what has happened with Visa and MasterCard. They tell the stores: You can't give any better treatment; you can't say this is a Visa store or a MasterCard store. No way. You have to say we accept all credit cards from these issuing agencies. And basically, you can't limit it to debit cards, limit it to check cards, give a discount, limit the amount in terms of the dollar amount you can charge on these cards.

I also want to say that governments are paying these credit card companies a lot as well. Think of all the ways in which people conduct transactions with Federal, State, and local governments. Every time somebody uses a card to pay for a driver's license or a parking sticker or a ride on public transit or to pay a ticket or to obtain a permit, there is an interchange fee. The city of Chicago paid $7.5 million in interchange fees last year. The Chicago Transit Authority paid $1.8 million per year in interchange fees. The Illinois Tollway paid $11.6 million in interchange fees last year. In most cases, the government agencies have no bargaining power when it comes to the amount of the interchange fee. Every dollar spent on these fees is a dollar that could have been spent on jobs and services and a dollar that could have been spared from the taxpayer.

The American Association of Motor Vehicle Administrators represents DMVs across the country. They accept cards for payment of things such as driver's licenses, car registrations, and license plates. They wrote a letter. They said:

State motor vehicle agencies and other state agencies are experiencing unprecedented financial strain today, as we seek to control costs where possible. .....While our customers certainly appreciate the convenience of electronic transactions, few understand that the costs of accepting credit and debit card payments for motor vehicle agencies are higher today than ever before, and that these fees compound the current budget crisis that many states face.

The cost of interchange fees affects every local government, every State, every Indian tribe, and even the Federal Government. Right now, even the Federal Government is as helpless as any small business when it comes to trying to reduce their interchange costs.

The amendment which I offered, which was adopted on the floor of the Senate by a vote of 64 to 33, requires debit interchange fees to be kept at a reasonable level, and it allows sellers to offer discounts to consumers without threat of punishment from Visa and MasterCard. The amendment was adopted in a broadly bipartisan vote, as 17 of my Republican colleagues joined me in passing it. The amendment is going to help American families, each of whom pays an estimated $427 a year to subsidize the credit card companies and the banks issuing these cards.

Lobbyists for the financial industry have thrown the kitchen sink at my amendment in an effort to keep the $50 billion interchange fee system completely unregulated. Imagine, here is DURBIN's amendment getting into $50 billion worth of profit-taking these credit card companies and their banks, the biggest banks, are engaged in.

Incredibly, the card companies and banks have even argued that they need to preserve the $50 billion interchange system in order to protect consumers. Give me a break. On the issue of consumers, they have no shame. Do my colleagues recall that we passed a credit card reform bill and the credit card companies said: We will need 6 months to really get all this stuff together, all these changes. Give us a little time.

Remember what happened in that 6-month period? Every time you would go to pick up the mail and there was something from the credit card company, you would open it and they would announce they were raising interest rates. So they ran the rates up as high as they could before the Credit Card Reform Act went into effect.

When have Visa and MasterCard and the big banks ever stood up for consumers? Didn't we just see them fall all over themselves to gouge cardholders before this last credit card act went into effect? Where do the banks and card companies think their $50 billion in interchange fees comes from? It comes from consumers who subsidize the interchange system by paying higher retail prices. It is a massive hidden transfer of wealth from consumers to big banks.

The amendment represents one of the big wins for small businesses and consumers in years. It will help small businesses grow and create jobs.

Don't let the Wall Street lobbyists fool you. They will say anything to protect their big bank profits.

I have received some letters from Illinois small businesses supporting my interchange reform. From James Phillip, Jr., owner of Phillip's Flower Shops in Westmont, IL:

As an 87-year old family business, over one-third of our customer purchases are paid by credit and debit cards; yet we found that over the years our cost of clearing credit cards and complying with their rules has increased faster than the total amount cleared--to the point that it is now extremely burdensome on the independent retailer. .....I am writing to voice my support for legislation that would make credit card fees and rules for merchants more reasonable and competitive.

Mr. President, whether it is Colorado or Illinois, if we are coming out of this recession, it will be because small businesses are on the move, expanding their employment, expanding their efforts, expanding their businesses. This is a drag on small business.

From Robert Jones, president of the American Sale patio store in Tinley Park, IL:

I am a small businessman in Illinois. I want to thank and encourage you to push for credit card and debit card interchange reform. Being a small business we have absolutely no choice and no power to negotiate with the big credit card companies over their fees. They basically tell us ``take it or leave it.'' Since the vast majority of our customers now pay with credit cards due to all the points and perks they are getting for doing so, we have no alternative. They essentially have a monopoly on taking payments from our customers. I applaud your amendment to level this playing field.

From George LeDonne, owner of LeDonne Hardware in Berkeley, IL:

As the owner of a hardware store in Berkeley, IL, I am directly affected by these fees. Small businesses are closing every day as it becomes more of a struggle to stay profitable. Your help in recognizing and acting on this is appreciated.

Russ Peters, owner of Mobile Print, Inc., a printing company in Mount Prospect, IL:

I wish you to know I definitely support this reform. Credit cards are ubiquitous in today's marketplace and these common sense reforms will benefit a small business like mine.

Jim Dames, he owns the Snackers Cafe in Western Springs:

Please help small businesses, I can't fight the credit card companies alone.

And here is an old friend of mine, George Preckwinkle, president of Bishop Hardware and Supply. He has 10 locations in central Illinois. I have known George for 40 years. He wrote me a letter. And George is not of the same political faith that I am, so I accept this as being a genuine statement, not partial in any way. George writes:

It is very important to business, especially smaller business, to solve the problems retailers are having with exorbitant fees and contractual restrictions imposed by Visa and MasterCard. Senator Durbin's amendment would be a huge help.

I cannot tell you how great it is to hear from my friend George, who probably has never voted for me but just sent me the nicest note about this effort.

I could go on with a long list, but I will not. But I will just tell you this: The information we are receiving is very clear. Whether the business is small or large, whether it is a private entity or a public entity, such as the city of Chicago, the city of Springfield, IL, whether we are talking about universities that are trying to keep their costs down for students, whether we are talking about charities that literally are trying to raise enough money to do the good things that need to be done in our country and in our world, the credit card companies are always there with their hand out and their demands for these fees. For years, there has been virtually no competition. These small businesses do not have a fighting chance against these credit card companies.

Well, I can tell you, I have roused a sleeping giant, if it was ever asleep, in the giant credit card companies in what they are trying to do on Capitol Hill. They are smothering this place with lobbyists who are calling, and they realize they have almost no credibility whatsoever, so they are finding surrogates.

The latest group, which really saddens me, is the credit unions. Historically, I have always voted with the credit unions. I have thought they virtually represent the right way to loan money, and they get special treatment because of that approach. Their idea, of course, is they collect the money from their members in their savings, and they loan it out so that their members can buy cars and other things that are necessary. They keep their costs low because they are nonprofit. We do not tax them, so we give them special treatment. But they also issue credit cards, so we exempted them from my amendment. Virtually every credit union in America, but for three, is exempt. We put a $10 billion threshold for any financial institution that would be affected by it. That eliminates almost 8,000 credit unions. Only three would be covered. They are huge. Yet the credit unions are roaming all over Capitol Hill saying the Durbin amendment is the end of the world.

Here is their logic: If we end up reducing the interchange fee on debit cards in the biggest banks, then Visa and MasterCard have said to the smaller banks and credit unions: We are going to reduce your interchange fee too. And they say they have to do that because they just cannot separate all these different banks and credit cards. Well, that is just a bunch of baloney, if I can say that on the floor of the Senate--and I just did--because Visa has 122 different categories of interchange fees today; MasterCard, over 100. So the argument that they cannot separate the little banks from the big banks--get out of here.

Secondly, they have the power today to lower interchange fees unilaterally. They can just call and say to these credit unions and community banks: We are going to lower the interchange fee that is being paid to you. They can do it, and these banks have no recourse whatsoever. If the banks and credit unions think that is an unfair proposition, then they are standing in the shoes of small business--in exactly the same position.

These Visa and MasterCard credit card companies have reached the point where they have so much power and virtually no competition, that it was confirmed last week in a hearing of the Senate Judiciary Committee that they are currently being investigated by the Antitrust Division at the U.S. Department of Justice. No details were provided in terms of this investigation, but the person who spoke for the Department of Justice confirmed that fact. They have reached the point where they virtually have no competition. They can impose whatever they want.

Let me make one last point about that. If Visa and MasterCard make their money because more people own credit cards and more banks issue credit cards, does it make sense that they would create an environment where credit unions and smaller banks would not want to issue credit cards? Of course not. The profitability of Visa and MasterCard is when more people are using credit cards, more banks are issuing credit cards. So if they are going to make it more difficult for banks and credit unions to issue credit cards, they are really cutting off their nose to spite their face, and I think that is pretty obvious.

But it is interesting to me how fearful credit unions are of Visa and MasterCard. They are literally shivering in their boots. They do not understand that they are the victims as much as the small businesses are of these powerful credit card companies. I wish for once they would step back and take a look and not just automatically sign up whenever the largest banks in America say jump. It just should not be that the commercial banks, the community banks, the credit unions are doing this, and it really is a vast departure from where they have been historically.

So at this point, the bill is now in conference committee, and I know Senator Dodd and Chairman BARNEY FRANK of the House Banking Committee are working hard to try to enact this bill. I know the strong bipartisan vote in the Senate is an indication of how we feel about it. I hope our friends in the House, though they do not have that provision in their bill, will consider making this part of the conference committee report.

It will be a positive day for us in America when the message is finally delivered to the credit card companies that they can no longer have this dictatorial grip over small businesses and the issuing banks they have today.

I hope we can see, in the next 2 weeks, a bill coming forward on Wall Street reform with many important provisions. This is one that is certainly important to me personally and I think will be a way for us to help small businesses increase jobs and help this economy come out of this recession. I hope we can do that soon.

Mr. President, I see another colleague on the floor, and I yield the floor.

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