Defending His Amendment, Sen. Durbin Fires Back at Small Banks

U.S. Sen. Richard Durbin is chastising small banks and credit unions for not liking his debit card interchange regulation proposal, and Visa Inc. claims consumers strongly oppose legislation that would raise their costs or reduce their cards’ utility.

These developments emerged as the House of Representatives and the Senate begin to reconcile their differing versions of the sweeping financial-industry reform bill. The Senate added the so-called Durbin Amendment at the last minute May 13, much to the surprise of the payment card industry. Durbin, an Illinois Democrat and the Senate majority whip, would have the Federal Reserve determine what’s “reasonable and proportional” in debit card transaction costs, and give merchants greater freedom from network rules restricting their ability to set transaction minimums or maximums on credit or debit card sales. Durbin plans a hearing Wednesday to show how much credit and debit card processing fees cost taxpayers, Bloomberg News reported Monday.

Last week, the top executives of several small-bank and credit-union trade groups said they wanted no part of Durbin’s proposal, even though it would exempt from regulation the interchange income of financial institutions with assets of $10 billion or less, a group Durbin said includes 99% of banks and credit unions (Digital Transactions News, June 9). Durbin fired back on Friday with a press release headlined, “Durbin Corrects Banking Lobby’s Arguments on Interchange … Again.”

The press release announced that Durbin had sent a letter to the chief executives of the Independent Community Bankers of America (ICBA) and Credit Union National Association (CUNA) expressing “my disappointment at the claims your associations continue to make in your efforts to block reasonable regulation of the interchange fee system.” The letter said the small institutions’ arguments are that Visa and MasterCard will cut small-institution interchange and that merchants will favor cards from big issuers, since they will presumably carry lower interchange rates.

“These assertions are untrue,” the letter says. Durbin said cutting small issuers’ interchange would be contrary to the networks’ own economic interests. “Even corporate spite has some boundaries, and sacrificing revenues seems inconsistent with the profit-driven actions that Visa and MasterCard have taken to date,” Durbin said. Regarding the second point, Durbin said his amendment bans discrimination by merchants against debit card issuers.

“The reality of your argument against my amendment seems to be that you are so fearful of Visa, MasterCard, and their big-bank allies that you do not believe you can support any regulation of the interchange system, no matter how reasonable,” Durbin said. “You are afraid to take what you perceive to be the risk that these giant corporations might punish you for disagreeing with them. In short, you are concerned that Visa, MasterCard, and their big-bank allies may choose to use their market power against you.”

An ICBA spokesperson had no comment about Durbin's letter, and a CUNA spokesperson did not respond to a Digital Transactions News inquiry. CUNA, however, issued a press release Monday highlighting a bipartisan letter in the House signed by 105 legislators as of late Friday urging the conference committee charged with reconciling the House and Senate versions to drop the language on interchange regulation.

Visa, meanwhile, weighed in Monday with results of a Visa-sponsored consumer poll that it claims shows most Americans don’t like what the Durbin Amendment would bring. Asked about who should pay the cost of accepting payment cards used in purchases, 60% of respondents said the retailer involved, 24% said the buyer, and 16% didn’t know. Asked if they favored or opposed Congress making laws to set prices retailers pay for accepting debit cards, 39% said they strongly opposed and 16% somewhat opposed while 17% strongly favored and 16% somewhat favored.

Some 83% of respondents said they opposed legislation that would result in them paying debit card fees if the financial bill set the prices retailers would pay for accepting debit cards. Seventy-five percent said they opposed legislation that would enable merchants to set minimum amounts for credit card purchases or raise consumers’ debit card costs.

Fabrizio, McLaughlin & Associates conducted the telephone poll June 2-6 based on a nationally representative sample of 1,000 adults. Visa says the full results have a margin of error of 3.1% at the 95% confidence level.

MasterCard chief executive Robert W. Selander has sent a letter to Durbin outlining his objections to the amendment. The bill of which the Durbin Amendment is a small part has instigated one of the biggest political fights in years. USA Today reported Monday that, according to The Center for Public Integrity, “more than 850 banks, hedge funds, companies, and other organizations have hired more than 3,000 lobbyists to weigh in on the legislation.”