Durbin Decries Credit Card Interchange Settlement, Hints at Small-Ticket Debit Fix

The chief sponsor of the Durbin Amendment that regulates debit card interchange is calling the proposed settlement in a big credit card interchange court fight “a stunning giveaway” and “a capitulation to the Wall Street banks and credit card giants.” In addition, U.S. Sen. Richard Durbin, D-Ill., wants to fix what he calls a loophole in the Federal Reserve’s rules implementing his amendment’s debit provisions in order to lower interchange for small transactions.

Durbin, the Senate majority whip, was not a party to the credit card settlement between merchant plaintiffs and defendants Visa Inc., MasterCard Inc.. and some banks, but that didn’t stop him from opining about the matter in comments last week published in the Congressional Record, the official journal of Congress. He called the accord “a sweetheart deal” for banks and the card networks, “and a bad deal for merchants and for consumers.”

Under the plan, the networks and banks will pay $6.6 billion in damages to individual and class merchants and temporarily lower credit card interchange to the tune of $1.2 billion. Merchants also will be free to surcharge credit card transactions. In return, the networks will be shielded from future lawsuits over interchange.

Durbin said the deal was negotiated in secret and “the vast majority of merchants had no idea what was in the proposed settlement until it was unveiled.” He acknowledged that the payout to merchants is big, “but, $6 billion is only two months worth of credit card interchange fees. And the settlement does not prevent Visa and MasterCard from simply jacking up their fees even higher than before.”

Several merchant trade groups and some big retailers, including Wal-Mart Stores Inc. and Target Corp., have publicly criticized the settlement, which was announced July 13 and awaits final approval in U.S. District Court in Brooklyn, N.Y. Opponents say the settlement would prevent merchants from going to court in the future to challenge interchange or network rules, even if they were not part of the current litigation. Merchants, however, may have a difficult time under court rules in getting enough opposition marshaled to reject the plan.

“The extent of the free pass Visa and MasterCard would get under this proposed settlement is breathtaking,” Durbin said. “No wonder the banks and cards were so quick to come out in favor of this settlement. And no wonder Visa’s stock hit an all-time high the next business day.”

Spokespersons for Visa and MasterCard referred requests for comment about Durbin’s remarks to the Electronic Payments Coalition, a lobbying group of card networks and banks. An EPC spokesperson could not be reached late Tuesday.

Payments consultant and former Visa executive Eric Grover says by e-mail that Durbin “betrays his visceral hostility to the payments industry and frustration at being unable in the current political environment to legislate credit-card interchange price controls.”

Meanwhile, Durbin indicated a desire to change a provision in the Fed’s regulations implementing the debit card interchange provisions of his amendment, which is part of the 2010 Dodd-Frank Act, to help merchants that take debit cards for low-value sales. Under the rules that took effect last Oct. 1, interchange is now capped at about 24 cents per transaction on debit cards from issuers with more than $10 billion in assets. But with small card sales, the network through their new interchange schedules essentially turned that cap into a floor for transactions that previously would have generated less than 24 cents in interchange, according to Durbin. The small-ticket issue caused some consternation for vending machine owners and others merchants generating many small debit card sales, consternation that has caught Durbin’s eye. In his Congressional Record remarks, Durbin noted the Fed originally proposed a 12-cent interchange cap.

“Basically, the banks and card companies lobbied the Fed for a loophole, and when they got one, they ran through it,” he said. “This needs to be fixed going forward, and I am confident it will be fixed.”

Durbin, however, did not say how it would be fixed. Many observers say Congress has little desire to re-visit the interchange issue. The Fed, however, has indicated it will periodically review how its Durbin Amendment rules are working. A Durbin spokesperson did not respond to a Digital Transactions News request for comment.