Sen. Richard Durbin chastised the card industry for what he called its refusal to negotiate interchange rates in a hearing held on Wednesday to investigate the fees federal agencies pay to accept cards. Sponsor of a controversial amendment that would regulate interchange fees for debit cards, Durbin also revealed during the hearing that he is working on a revision to his amendment that would exempt state prepaid card programs. Some state treasurers had expressed concern that Durbin’s amendment would hurt their programs.
The hearing, held by the Senate Appropriations Committee’s subcommittee on Financial Services and General Government, of which Durbin is chairman, comes a day before Congress is set to begin considering the Illinois Democrat’s amendment. The Senate version of a financial-services reform bill passed last month with the amendment, but a House version that emerged in December contains no such proposal. Congress has said it hopes to have a final bill ready for President Obama’s signature by July 4.
Durbin stressed repeatedly during the hearing–which featured six witnesses, including representatives of federal agencies, Amtrak, Visa Inc., a consumer activist, and an Illinois convenience-store chain–that interchange is non-negotiable and uncompetitive and decried the cost the card networks’ pricing system imposes on taxpayers. At one point, he expressed surprise and indignation when Gary Grippo, an official with the Treasury Department, said he had had little success in trying to negotiate interchange for the federal government, even though Treasury processed $8.6 billion in card transactions last year on behalf of 228 agencies, resulting in $116 million in interchange fees to the government. “Our $8.6 billion may not be enough to negotiate with Visa and MasterCard,” Grippo told Durbin. “While we do aggressively compete to select an acquiring bank, interchange fees are not something that acquiring banks control.” Referring to the c-store chain whose chief executive would testify later, Durbin replied: “What chance does a Qik-N-Ez have if $8 billion doesn’t get you to the table?’
Later, Durbin grilled Bruce Sullivan, a vice president at Visa, about whether and when any federal agencies had been able to negotiate interchange. When Sullivan said there had been such cases, Durbin demanded details and Sullivan promised to get back to him on the matter, though no deadline was set. In his testimony, Sullivan said many government card programs that saved taxpayers money were made possible by banks’ income from interchange fees. He also argued that Visa’s interchange rates for government transactions have “remained essentially flat over the last decade.”
But several witnesses complained about the complexity of the interchange structure, arguing it was impossible to track average rates and acceptance costs because of the multiplicity of rates set by the card networks. “We don’t have any control over these expenses,” Wendy Chronister, chief executive of Springfield, Ill.-based Quk-N-Ez Stores, told the committee, adding her chain can’t track overall interchange expense.
Other questioning revealed a change that may be coming to the Durbin amendment. When Sen. Ben Nelson asked Grippo about the possible impact of the Durbin amendment on prepaid card programs used by states to distribute aid, Durbin said he would write language to exempt transactions on such cards. “We are working on an amendment that would carve out those government cards so they would not be affected,” he said. Treasurers with some states that use the card programs said they feared the loss of interchange income from Durbin’s amendment would force banks to raise the cost of the programs to the states.