The Senate is to vote on the Swipe-Fee delay bill today.
The heavily lobbied delay bill, is about the interchange fees that the banks and the credit companies are charging over every transaction at the store. Last year, the Senate passed a bill to put caps on the swipe fees that has tripled over the last decade. The delay bill on the floor was submited by Sen. Tester right before the implmentation of the bill on July 21.
The swipe fees are costing consumers and raising the prices of retail items. One calculation estimates the swipe fees cost average $427 per household. The banks and the credit companies receive tens of billions of dollars for the fees.
Each swipe of the credit or debit cards sends the fees to the finantial institutions. This plastic payments amount to half of all purchases at the retail stores, and 80% of them are by big credit companies such as VISA or Mastercard, according to the letter from Sen. Durbin (D-IL).
Last year, Congress passed landmark legislation to reform the financial regulatory system. One small part of that was a change to the interchange fee system on debit card transactions in America. This bipartisan effort came after years of Congressional hearings and Government Accountability Office studies that made clear that the interchange system was on an unsustainable course. While I know that many in the financial services industry have vigorously opposed this reform, I believe this reform is essential for the sake of consumers, merchants and the American economy.
Debit and credit cards are rapidly replacing cash and checks in today's economy. Over half of all retail sales in America are now made with plastic, and that percentage is growing. There are benefits that come from the increasing use of these cards, but there are also concerns that can no longer be ignored.
Visa and MasterCard are the dominant players in the card industry, and their cards are used in about 80 percent of debit and credit transactions. Every time a sale is made with one of their cards, these card network companies take a cut out of the transaction amount. Some of this cut they keep, but most of it is routed along to the bank or credit union that issued the card as an interchange fee. Tens of billions of dollars are collected in interchange fees each year from those who accept cards, including large and small businesses, charities, and government agencies.
There is nothing wrong with fees that are transparent and set in a competitive market environment. That is not the case with interchange fees. Interchange rates are centrally fixed by the credit card companies.
The system is unfair to consumers, who pay tens of billions per year in hidden fees passed on to them in the form of higher retail prices. It is unfair to merchants, who cannot negotiate interchange fees and who can no longer refuse to accept the dominant card networks.
Last year's Wall Street reform bill calls for debit transactions to charge a fair and reasonable swipe fee. In crafting this necessary reform of the interchange system, Congress took careful steps to protect small banks and credit unions. Neutral analysts agree that the law's small-issuer exemption will give those issuers competitive advantages over their regulated competitors.
In short, interchange fee reform is necessary in order to ensure competition, transparency and choice in the debit card system.
-- Sen. Durbin (D-IL)