Senator Durbin Amendment #3989

To Help Small Businesses by Ensuring that Debit Card Interchange Fees Are Reasonable

What Sen. Durbin's amendment does:

• Sen. Durbin's amendment would direct the Fed to issue rules to ensure that debit interchange fees are reasonable and proportional to the processing costs incurred. Visa and MasterCard currently charge debit interchange 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.
  
  
• Sen. Durbin's 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 Sen. Durbin's amendment is needed:

• Sen. Durbin's amendment is a response to interchange price-fixing by Visa and MasterCard. Interchange 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 interchange fee rates that apply to all banks within their networks. Every bank gets the same interchange 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 interchange rates, and there is no constraint on Visa and MasterCard's ability to fix the rates at unreasonable levels. Visa and MasterCard constantly raise interchange rates because the more interchange the banks receive, the more the banks will issue cards. Visa and MasterCard receive a fee each time a card is swiped, so rising interchange rates enrich them too.
  
  
• Visa and MasterCard have reduced debit interchange rates in other countries while increasing them in the U.S. While Visa and MasterCard continue to raise U.S. interchange 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 interchange rates." Just last month, Visa lowered many European debit rates by 60% while increasing many U.S. debit rates by 30%.

What Sen. Durbin's amendment DOES NOT do:

• Sen. Durbin's amendment does not affect credit card interchange fees. Some have argued that Sen. Durbin's amendment would reduce credit availability by regulating credit card interchange rates. However, the amendment's reasonable fee requirement only applies to debit cards.
  
  
• The Durbin reasonable debit fee requirement exempts banks and credit unions with assets under $10 billion (this includes 99% of all banks and credit unions). Under Sen. Durbin's amendment, the requirement that debit fees be reasonable does not apply to debit cards issued by institutions with assets under $10 billion. This means that Visa and MasterCard can continue to set the same debit interchange rates that they do today for small banks and credit unions. Those institutions would not lose any interchange revenue that they currently receive.
  
  
• Sen. Durbin's 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.
  
  
• Sen. Durbin's amendment would not have the Federal Reserve set interchange prices. Under Sen. Durbin's amendment the Fed would not set debit interchange prices. Instead the Fed would oversee the debit interchange 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.