Sen. Durbin Looking to Address Credit Card Interchange Fees

Card network giants, Visa and Mastercard, are getting scrutinized by the Senate Judiciary Committee over an increase in swipe fees.

Visa and Mastercard say they need to increase their interchange fees (often called swipe fees) due to increased costs from consumer rewards, anti-fraud measures and compensation for issuing banks. They also claim that the card networks are facing fierce competition from peer-to-peer payment apps, cryptocurrencies, and buy-now-pay-later services.

Committee Chairman Richard J. Durbin (D-Ill) questioned the increase, citing the following issues:

• The swipe fee increase coupled with inflation will make it more difficult for merchants to compete;
• Consumers will bear the cost of the increase as merchants will be forced to raise prices;
• Only the most affluent consumers will see any benefit from these increases (i.e., those eligible for the higher tier rewards programs); and
• Merchants are unable to negotiate with the credit card companies or dispute hikes because, the Chairman says, Visa and Mastercard are a duopoly.

Sen. Chuck Grassley (R-Iowa), ranking member on the Senate Judiciary Committee, and other Republican committee members accuse the Democrats of scapegoating the credit card companies. They claim that the problems facing merchants, consumers, and the economy as a whole, mainly inflation at a forty-year-high and supply chain issues, are not the fault of the credit card companies and interchange fees but, rather, failed government policies.

The Senator from Iowa, however, reportedly acknowledged that a "balancing act" was needed between the interests of all parties. In effect, he said that raising rates could be acceptable provided that "these rates reflect market forces" as opposed to a situation in which "interchange fees are set above rates that would be found in the competitive market."

The Durbin Amendment, which is a provision in the Dodd-Frank Act, puts a limit on debit card transaction fees. Senate Democrats are considering using the Durbin Amendment as a model for putting a limit on credit card interchange fees. The Chairman would like to regulate the industry in the following ways:

• Require companies to show consumers how much of their money is spent on swipe fees;
• Prohibit exclusivity deals that block banks from issuing more than one brand of credit card; and
• Prevent fees "from being jacked up to unreasonable levels."

We tracked the Durbin Amendment when it was challenged and eventually upheld by the DC Circuit. DWT will also watch for the rule's transaction routing requirements to appear in other contexts. For now, we will keep a close eye on Congress to see if it moves to impose Durbin-like restrictions on credit card transactions and swipe fees.