Correcting the Record About the Durbin Amendment

Senator Dick Durbin
Feb 3, 2017 · 4 min read

Credit card companies and banks usually aren’t shy when they’re trying to sell you something. Heck, Wells Fargo didn’t even bother to ask consumers before signing them up for as many as two million checking and credit card accounts.

Now we’re seeing a major lobbying effort by banks and card companies trying to sell Congress on the idea of repealing the 2010 law that protects Main Street from anti-competitive swipe fees. But the arguments they use to lobby against swipe fee reform are so easily discredited it should make them blush. Let me dispel a few of what the banks might try to pass off as “alternative facts” about the Durbin Amendment.

First, the lobbyists keep saying that the 2010 swipe fee reform amendment I authored was somehow slipped in the Wall Street Reform bill at the 11th hour. Actually, the amendment was adopted by a bipartisan Senate vote of 64–33 more than two months before the bill was signed into law.

Second, they often claim that I suddenly took up the cause of swipe fee reform at the behest of Walgreens’ CEO during the 2010 reform debate. A minute’s worth of research would show that I actually attended my first Senate hearing on swipe fees in 2006 and introduced my first reform bill in 2008.

Don’t the banks remember my 2008 bill, which would have created a fair process for merchants to negotiate swipe fees with Visa and MasterCard by giving both sides equal bargaining power? A bipartisan House companion bill passed out of the House Judiciary Committee that year before financial lobbyists went all out to keep it from a floor vote.

And have they forgotten the bipartisan amendment that Senator Kit Bond and I tried to offer on the Credit CARD Act in 2009? Our amendment simply tried to promote fee transparency and better discounting options for merchants. Unfortunately our staffs made the mistake of sharing draft text in good faith with the financial industry to get their views. The industry promptly launched another lobbying firestorm before the amendment was even filed, and they ended up killing that amendment too.

The fact is I tried for years to work with the financial industry on reasonable swipe fee reform, but the industry wouldn’t have it. It’s no secret why they fought reform so hard — they had rigged the swipe fee system to avoid normal market competition and guarantee enormously profitable levels of fees for every card-issuing bank. This rigged system belied another big bank urban myth- that the Durbin Amendment somehow interfered with a free marketplace in debit cards. Just check the law — the Durbin Amendment’s fee regulation only applies when a big bank lets a card network price-fix its fee rates. Only in bank lobbyists’ minds is a system of price-fixed fees an example of a free marketplace.

There are other myths that the financial industry keeps repeating despite clear evidence to the contrary:

· They say swipe fee reform reduced free checking for consumers, even though the American Bankers Association’s own statistics show otherwise.

· They claim retailers have pocketed savings from swipe reform, even though the retail industry is highly competitive with about 2 percent net profit margins while big banks enjoy about 24 percent net profit margins and Visa’s and MasterCard’s net profit margins are over 40 percent. If merchants were hoarding savings from swipe fee reform, wouldn’t they have soaring profits like the big banks and card companies?

· They claim that swipe fee reform has hurt some merchants because Visa and MasterCard have increased certain merchant fee rates and created entirely new fees. But Visa and MasterCard were jacking up merchant fees for years prior to reform, and they continue to try to increase merchant fees and create new fees whenever they are not restrained by market competition or regulation. The solution to the problem of excessive merchant fees is not repeal of the 2010 law but rather further reform to rein in Visa and MasterCard, either by enabling more competition or placing stricter limits on their price-fixing of fee rates.

· They claim that the 2010 reform has disadvantaged small financial institutions, even though the law allows small banks and credit unions to continue having card companies price-fix their debit swipe fee rates without regulatory limits. The Federal Reserve reported in November that the average swipe fee for small banks and credit unions is 43 cents per transaction, nearly double the regulated fee rate for big banks. This reflects a significant competitive advantage that small banks and credit unions receive over big banks under the current system. In fact, the Fed reported that small banks and credit unions received 52% of total debit swipe fee revenue in 2015 ($9.59 billion) even though they conducted only 35% of the total number of debit transactions.

The financial industry is throwing other discredited arguments against the wall to see if any stick; see my recent Dear Colleague letter for further rebuttals. But it’s time to dispense with myths. Here’s the reality: repealing swipe fee reform would be a disaster for Main Street merchants, consumers and competition. It would be a massive $8 billion-per-year giveaway for Visa, MasterCard, Wells Fargo and other big banks at the expense of local grocery stores, gas stations, retailers and the customers who support them. And it would be a gut punch to a retail industry that supports tens of millions of American jobs and that is facing intense competitive pressures. Let’s stand up for Main Street and reject this ill-advised lobbying sales pitch by the big banks and card companies.

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