WASHINGTON–Sen. Dick Durbin (D-Ill.) is leading the fight to break the hold big banks and major credit and debit card providers–Visa and Mastercard–have on business through what Durbin calls “price fixing” on “swipe” fees. Swipe fees are the cut the credit card companies take from the merchant every time a debit card is used. The fees now are the same for everyone–and Durbin wants banks to have to compete for swipe fee business. Durbin’s amendment is supported by a variety of business groups. The Senate is expected to vote on the amendment on Thursday. The amendment, if approved, would be folded into the larger pending financial systems reform package.
Below, from Durbin….
Support Durbin Amendment #3932
To Help Small Businesses by Ensuring that Debit Card Swipe Fees Are Reasonable
What the Durbin Amendment does:
The Durbin amendment would direct the Fed to issue rules to ensure that debit swipe fees are reasonable and proportional to the processing costs incurred. Visa and MasterCard currently charge debit swip 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 swipe price-fixing by Visa and MasterCard. Swipe 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 swipe fee rates that apply to all banks within their networks. Every bank gets the same swipe 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 swipe rates, and there is no constraint on Visa and MasterCard’s ability to fix the rates at unreasonable levels. Visa and MasterCard constantly raise swipe rates because the more swipe fees the banks receive, the more the banks will issue cards. Visa and MasterCard receive a fee each time a card is swiped, so rising swipe rates enrich them too.
Visa and MasterCard have reduced debit swipe rates in other countries while increasing them in the U.S. While Visa and MasterCard continue to raise U.S. swipe 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 swipe 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 swipe fees. Some have argued that the Durbin amendment would reduce credit availability by regulating credit card swipe rates. However, the amendment’s reasonable fee requirement only applies to debit cards.
The Durbin reasonable debit fee requirement exempts small banks and credit unions with assets under $1 billion (which includes 91% of all U.S. banks). Under the Durbin amendment, the requirement that debit fees be reasonable and proportional does not apply to debit cards issued by institutions with assets under $1 billion. This means that Visa and MasterCard can continue to set the same debit swipe rates that they do today for small banks and credit unions. Those institutions would not lose any swipe 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 swipe prices. Under the Durbin amendment the Fed would not set debit swipe prices. Instead the Fed would oversee the debit swipe 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.