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Durbin to Visa and MasterCard: Check Yourselves!

In a letter to the chief executives of Visa and MasterCard, Sen. Dick Durbin (D-Ill.) lambasted the companies for misconstruing his reforms of credit card interchange fees to small banks and small businesses. He also threatened that he might consider some card issuers’ practices anti-competitive, and requested a reply by June 14.

Durbin’s amendment to the Senate financial regulatory reform bill prevents big card issuers like Visa and MasterCard from charging high “swipe fees” — which netted $48 billion for credit and debit cards in 2008 — even though the cost of processing transactions has decreased. The amendment is targeted at lowering swipe fees for small businesses.

Here is the full text of the letter:

Dear Mr. Saunders and Mr. Selander:

I write in regard to the unfortunate coordinated campaign your companies have launched distorting the impact of my recently-passed interchange amendment on small banks and credit unions.

**It appears that, in an effort to frighten small banks and credit unions into opposing the amendment, your companies are threatening to make changes to your small bank interchange fee rates and to your network operating rules. These changes, which are not in any way required by the amendment, are unnecessary and would disadvantage small card-issuing institutions. **

**I ask you each to state unequivocally that you are neither threatening nor planning to take steps that would purposefully disadvantage small institutions, should the amendment become law. Further, I warn you that if your companies coordinate with each other or collude with your largest member banks to make changes to your fees and rules, it would raise serious concerns that you are engaging in an unlawful restraint of trade. **

The amendment I offered, which was passed by the Senate in a bipartisan vote of 64-33, would establish a reasonable interchange fee standard for transactions involving debit cards issued by banks with assets of over $10 billion. The amendment would also prevent your companies from punishing merchants who provide discounts to customers for use of a particular card network (e.g., Visa vs. MasterCard) or a particular form of payment (e.g., cash vs. debit card vs. credit card), or who set minimum or maximum dollar thresholds for use of a credit card.

This language was carefully drafted in order to avoid creating any disadvantage for small banks and credit unions, and I went to great lengths to protect the ability of these small institutions to successfully compete with big banks in offering payment cards to consumers.

As you know, the amendment does not in any way require changes to the interchange fee rates that your companies have established for small banks and credit unions. In fact, 99% of all U.S. financial institutions are exempted from the amendment’s debit fee regulations.

Nor does the provision in any way permit merchants to discriminate against cards issued by small issuers. It does not touch your current network operating rules that require that cards be honored in the same way regardless of the identity of the bank that issued the card.

The only way that small banks or credit unions could experience interchange rate reductions or be discriminated against is if your companies decide to cut small bank interchange rates and rescind your operating rules that currently prohibit discrimination between card-issuing banks. Sadly, it appears from your companies’ public statements and other communications that you are contemplating just such steps.

In a May 20 statement, Visa charged that the amendment “could especially harm community banks and credit unions that depend on interchange to offer competitive banking services to firefighters, police officers, teachers, veterans, congressional staffers and other customers.” Also in a May 20 statement, MasterCard said the amendment will “punish banks on Main Street because the ‘carve-out’ for banks with assets below $10 billion is a sham.” The simple fact is, however, that small banks would not be harmed or punished under the amendment unless your companies decide to harm or punish them.

If your companies were to coordinate such punitive actions in the same way that you appear to have coordinated your messaging tactics, serious concerns would be raised that you are engaging in an unlawful restraint of trade. Further, I would caution you not to collude with your largest member banks to change your fees and rules in an effort to protect the big banks against competition from smaller card-issuing banks. Such steps would also raise serious antitrust concerns.

I know that your companies strongly oppose the amendment that was adopted by the Senate, and I am not surprised by your opposition. The provision would correct anti-competitive aspects of a system that has brought enormous revenue to your companies and to the largest banks at the expense of America’s small businesses and consumers. Nevertheless, I urge you to commit that if this amendment becomes law, you will not take steps to purposefully disadvantage small issuers. By making such a commitment, you will provide much-needed reassurance that you are not attempting to protect the biggest banks you serve by threatening the smallest.

Please respond in writing to this letter by June 14. I look forward to receiving your responses.

Sincerely,

Richard J. Durbin

United States Senator

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