WASHINGTON–Card interchange and overdraft fees were the subject of two separate Senate hearings yesterday, and there were powerful interests on both sides of each issue, including credit unions.
In his opening statement to the Senate Judiciary Committee hearing on interchange, titled "Excessive Swipe Fees and Barriers to Competition in the Credit and Debit Card Systems,” Sen. Dick Durbin (D-IL), chair of the committee and for whom the so-called Durbin Amendment is named, made clear his position hasn’t changed since that amendment became law a decade ago.
Durbin referred to interchange fees as “anti-competitive,” and blamed rising interchange fees for higher consumer prices.
“Visa and Mastercard control around 80% of the credit and debit card market. And they have established a system of fees and rules that apply to every transaction involving cards issued by the thousands of banks in the Visa and Mastercard networks,” said Durbin. “Interchange fees are designed to avoid competitive market pressures. Banks get the fees, but the banks do not set the fees. Instead, the banks let Visa and Mastercard set the fees on their behalf, so the same schedule of fee rates applies for all banks in the network.
“Bottom line: when swipe fees go up, it costs more to use money. And that cost gets built into the prices that consumers ultimately pay,” Durbin said.
Nearly $80 Billion in Fees Paid
According to Durbin, merchants paid out $77.48 billion in credit card fees and $28.06 billion in debit card fees imposed by Visa and Mastercard during 2021.
As CUToday.info reported earlier, the hearing and the themes expressed by Durbin were welcomed by the nation’s retailers and merchants. Both CUNA and NAFCU sent letters to the committee ahead of the hearing warning of “concerns” around any changes (see separate reporting).
A merchants’ trade group had called for the hearing after Visa and Mastercard last month declined to stop a $1.2 billion increase in swipe fees even though Durban, Sen. Roger Marshall (R-KS), Rep. Peter Welch (D-VT) and Rep. Beth Van Duyne (R-TX) had requested that the hike be withdrawn.
CUNA Response
In response, CUNA CEO Jim Nussle was critical of the need for the hearing.
“Today’s hearing is nothing more than an attempt to expand the failed price controls that Dodd-Frank created. Over the past two years, big-box retailers like Walmart and Amazon have seen a $250 billion boost in sales, but they still want Congress to further pad their profit sheets at the expense of consumers’ ability to access credit,” Nussle said. “America’s not-for-profit credit unions rely on interchange fees to keep consumers—and the merchants they buy from—safe and whole when data thieves and card hackers exploit weak links in the payments system. I hope that Senator Durbin sees that these policies hurt community-focused credit unions and the 130 million members who rely on them to make life work.”
According to CUNA, interchange fees are nominal fees card issuers charge to merchants to support credit card programs, including:
- Providing data security and credit monitoring when bad actors hack merchants’ systems
- Making merchants and consumers whole when fraudulent purchases are made
- Offering low- and no-annual-fee cards to provide consumers with access to credit.
CUNA said its research indicates lower credit card interchange rates could lead one in seven credit unions to reduce or eliminate their credit card programs altogether.
In a letter sent to the committee ahead of the hearing, CUNA laid out further concerns with the Senate’s approach to credit card interchange.
NAFCU Response
“Today’s Senate Judiciary hearing only proves what’s broken in Washington. While NAFCU continues to advocate for policies that promote credit union growth and more affordable financial products for main street America, lawmakers need to take a deep look at who they’re truly representing: American consumers or merchant groups?” said NAFCU President and CEO Dan Berger. “Rather than interfering with the efficient way credit cards work today, it’s time to hold big-box retailers and e-commerce giants accountable for their failure to pass savings along to consumers that were promised under the failed Durbin Amendment. With more than 70 percent of U.S. GDP dependent on consumer spending, credit unions understand that now more than ever we need to put Main Street businesses and families first and reject the merchants’ call for new laws that would make basic banking services even more expensive for working-class Americans.”
Merchants’ Testimony
Among those testifying before the committee was Merchants Payments Coalition Executive Committee Member and National Association of Convenience Stores (NACS) General Counsel Doug Kantor.
“We hope this hearing will be a landmark step toward bringing about the transparency and competition that is missing from our nation’s broken payments system,” said Kantor. “In all other segments of the economy, businesses compete to offer the best deal to their customers, and those that do are rewarded. That is not true with credit cards. Instead, two global giants wield their immense market power to price-fix fees, shut out competition and set rules that make it impossible for anyone else to win. It’s time for Congress to tear down barriers to competition and ensure that we have a credit card market that works.”
Hearing on Overdrafts
Separately, a hearing before the Senate Committee on Banking featured new congressional pressure on financial institutions to eliminate overdraft fees, even as the financial services industry, including credit unions, have been pushing back.
Sen. Raphael Warnock (D-GA), who chaired the hearing, praised those banks and CUs that have reduced or eliminated fees, but indicated he believes more can be done.
According to Warnock, banks made $33 million off of overdraft fees last year, and that eliminating the fees will help many in the working class, college students and people serving or who have served in the military.
“Working families are trying to figure how to pay for groceries, how to pay for prescription drugs in a world in which big pharma is exploiting the cost of drugs and on top of that you have these overdraft fees, which are totally unnecessary and this is a part of my effort to shine a light on this,” Warnock said during the hearing.