Dodd-Frank Anniversary

Floor Speech

Mr. DURBIN. Mr. President, on July 21, we marked the 2-year anniversary of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

This landmark law has taken important steps to rein in the Wall Street abuses that nearly drove our economy off the cliff in 2008.

Two of its reforms were particularly important to me. One was the creation of the Consumer Financial Protection Bureau- the only agency in the Federal Government solely dedicated to looking out for consumers' financial interests.

This agency has already been a game-changer when it comes to curbing the tricks in consumer financial products. It is bringing transparency and fairness to mortgages, private student loans, and credit cards.

Last week, the CFPB announced its first ever enforcement action. It directed Capital One to pay about $150 million to more than 2 million consumers who had purchased deceptively marketed add-on products to their credit cards.

This is a big step forward. It shows there is a real cop on the beat when it comes to consumer protection.

I am proud of what this agency has accomplished so far, and I look forward to seeing it continue its important work for years to come.

Another important provision in the Wall Street Reform bill was the provision I drafted to reform debit card swipe fees.

The swipe fee is a fee that a bank receives from a merchant when the merchant accepts a credit or debit card that the bank issued. This fee is taken as a cut of the transaction amount.

Now, the vast majority of bank fees are set in a transparent and competitive market environment, with each bank setting their own fee rate and competing over them. That is not the case with swipe fees.

With swipe fees, the big banks decided they would designate the two giant card companies, Visa and MasterCard, to set fees for all of them. That way each bank could get the same high fee on a card transaction without having to worry about competition.

And swipe fees are anything but transparent. Most consumers and even most merchants have no idea what kind of swipe fee is being charged when they use a debit or credit card.

The swipe fee system became an enormous money-maker for Visa, MasterCard, and the banks. They were collecting an estimated $16 billion in debit swipe fees and $30 billion in credit fees each year.

Those billions are paid by every merchant, charity, university, and government agency that accepts payment by card, and the costs are passed on to American consumers in the form of higher prices.

By 2010, the U.S. swipe fee system was growing out of control with no end in sight. U.S. swipe fee rates had become the highest in the world- far exceeding the actual costs of conducting a debit or credit transaction.

And there were no market forces serving to keep fees at a reasonable level. Merchants and their customers were being forced to subsidize billions in windfall fees to the big banks.

I stepped in and introduced an amendment to the Wall Street reform bill that for the first time placed reasonable regulation over debit swipe fees.

My amendment said that if the Nation's biggest banks are going to let Visa and MasterCard fix swipe fee rates for them, then the rates must be reasonable and proportional to the cost of processing a transaction. No more unreasonably high debit swipe fees for big banks.

The regulatory steps that my amendment proposed were modest. Most other countries have gone much further in regulating swipe fees.

But the banks and the card companies screamed bloody murder.

My amendment passed the Senate with 64 votes, and it was signed into law with the rest of Wall Street reform. And the swipe fee reforms took effect last October.

As it turns out, debit swipe fee reform is working pretty well.

So far, reform has led to an estimated $7 to $8 billion in annual debit swipe fee savings for merchants.

That savings is a real shot in the arm for American businesses that have been crushed by ever-rising swipe fees.

Consumers are also benefiting as savings are passed along from merchants through competition.

After reform took effect in October, we saw a massive level of retailer discounting that extended beyond the usual holiday season discounts.

And according to a USA TODAY article from May 11, a number of individual merchants are offering debit card discounts for items such as gas, furniture, and clothing. This trend is expected to continue and to grow.

Furthermore, the banking industry had claimed that small banks and credit unions would be hurt by debit swipe reform- even though all institutions under $10 billion in assets were exempted from fee regulation.

As it turns out, small banks and credit unions have thrived since reform took effect.

Why? Because under my amendment, small banks and credit unions can continue to receive the same high interchange rates from Visa and MasterCard far higher than the rates that their big bank competitors receive.

In May, the Federal Reserve confirmed that exempted banks and credit unions were receiving the same average interchange rates they had gotten before reform.

The American Banker newspaper has noted that the ``Small Banks' Durbin Shield Worked'' and prominent card industry analyst Andrew Kahr noted that the ``Durbin Doomsday Never Came.''

Credit unions in particular are doing well after swipe reform. Last year 1.3 million Americans opened new credit union accounts, up from about 600,000 the year before. And credit unions now have a record number of members- almost 92 million overall.

Now, it is important to note that there should be even more savings from swipe fee reform to merchants and consumers.

When the Federal Reserve was writing its final rule, the banks lobbied them to weaken the final rule and raise the debit swipe cap from 12 to 24 cents. Then Visa and MasterCard promptly jacked up any swipe fee rates that were below 24 cents so that this 24 cent ceiling became a floor.

Basically, the banks and card companies lobbied the Fed for a loophole, and when they got one, they ran through it.

This needs to be fixed going forward, and I am confident it will be fixed.

The bottom line, though, is that the swipe fee reform that Congress enacted in 2010 has gotten off to a good start. It is working, and it is laying a solid foundation for further reforms to improve the credit and debit systems.

I am afraid, however, that while swipe fee reform has made important strides in Congress, the big banks and card companies are trying to undercut that reform in the courts.

Recently a proposed settlement was announced in a long-running class action lawsuit. This lawsuit had been filed back in 2005 by a number of merchants against Visa, MasterCard, and the big banks that issue most of their credit cards.

The lawsuit was over credit card interchange fees and the associated rules that Visa and MasterCard impose on merchants. The suit alleged that these fees and rules violate the antitrust laws in the way that they are set.

This lawsuit had the potential to bring about important changes to the credit card system that would have promoted transparency, enhanced competition, and helped consumers.

But the proposed settlement does not do that. In fact, I believe this proposed settlement represents a capitulation to the Wall Street banks and credit card giants. It is a sweetheart deal for them and a bad deal for merchants and for consumers.

The settlement was negotiated in secret between Visa, MasterCard, the big banks, and the attorneys representing a small number of merchants. The vast majority of merchants had no idea what was in the proposed settlement until it was unveiled.

The terms of the settlement include a $6 billion dollar payout from Visa, MasterCard and the banks to the plaintiff merchants. That is a large number it is nearly twice as much as the previous record payout in an antitrust case. And it is a clear sign that the card companies knew that their fees were unreasonably high.

But, $6 billion is only 2 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.

The settlement does nothing to change the anticompetitive fee-fixing that Visa and MasterCard do on behalf of their member banks. In fact, it gives Visa and MasterCard broad and permanent legal immunity to continue doing exactly that in the future.

Also, the settlement not only binds the merchants who are parties to it, but it also binds every single American merchant, charity, university, and State or local agency that accepts a Visa or a MasterCard today or in the future.

It bars all of them from ever bringing a legal claim in the future against Visa, MasterCard, or the big banks relating to any swipe fee, other merchant fee, or network rule, no matter how unfair or unreasonable the fees or rules may be.

And this settlement gives Visa and MasterCard legal immunity not just for credit cards, but also for debit cards, and prepaid cards and mobile payment systems.

The extent of the free pass Visa and MasterCard would get under this proposed settlement is breathtaking. 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 alltime high the next business day.

Now, the proposed settlement would make some temporary changes to Visa's and MasterCard's rules. But in my view, these proposed changes will be ineffective in reining in Visa and MasterCard's unreasonable fees.

The bottom line is that this proposed settlement does not make our credit card system better.

Instead, it gives Visa and MasterCard free reign to carry on their anticompetitive swipe fee system with no real constraints and no legal accountability to the millions of American businesses that are forced to pay their fees.

This is a stunning giveaway to Visa and MasterCard, all for a payout of a mere 2 months worth of swipe fees.

This is a bad deal, but it is not a done deal. The merchant plaintiffs still have to decide if they will support it, and the court must approve it. Several plaintiffs--the National Association of Convenience Stores, the National Grocers Association and the National Community Pharmacists Association--have already rejected the deal.

Now, I am not a party to this lawsuit, but I care deeply about making
the credit and debit card systems in this country more transparent, more competitive, and more fair.

I have worked hard over the years to make sure that merchants and consumers do not get nickled and dimed to death with hidden and unreasonable fees from Visa and MasterCard, and we have made great strides.

That is why I am speaking out about my concerns with this proposed settlement. I know that Visa, MasterCard, and the banks are thrilled with this settlement, but this is not a settlement I would agree to.

I hope that the remaining merchant plaintiffs will review the proposed settlement carefully and think hard about whether it will be good for the future of our credit and debit card systems. They should not be anxious to sign away that future and settle for a bad deal.

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