Sen. Durbin Assails MasterCard, Visa Price Fixing
WASHINGTON – Sen. Richard Durbin, author of the controversial rule to set caps on debit fees, yesterday denounced assertions by banks and credit unions that having card giants MasterCard and Visa set prices for debit is preferable to having the Federal Reserve set price limits on the increasingly popular form of payment.
Durbin, in a letter to JPO Morgan Chase CEO Jamie Dimon date April 12, insisted his amendment does not create price fixing “but constrains the price fixing that Visa and Mastercard currently perform on banks’ behalf.”
“Visa and MasterCard,” wrote Durbin to one of the primary owners of both card giants, “cannot simply be trusted to fix interchange prices in a way that is fair for all participants in the debit card system.”
Durbin’s letter was in response to a letter Dimon sent to the bank giant’s shareholders attacking the Durbin amendment.
The Illinois Democrat told the banking giant’s CEO he sees two problems with having MasterCard and Visa, which control an estimated 80% of the debit market, fix interchange rates. The first is “centralized rate-fixing does not give card-issuing banks incentives to manage their operational and fraud costs efficiently. This is because all banks in the network are guaranteed the same network-fixed interchange rate whether they are efficient or inefficient.”
Second, wrote Durbin, MasterCard and Visa have incentive to constantly increase interchange rates and “there is no countervailing market force to temper those fee increases.”
In fact, studies show that debit fees earned by banks and credit unions increased last year to an estimated $20.5 billion from $16 billion the year before, as the percentage of transactions now being paid by debit rose 15% to about 38% of all transactions. Credit unions earned an estimated $2.6 billion of those fees.
Durbin also took issue with claims that the Fed’s proposed rule on interchange will harm credit unions and banks under $10 billion that are supposed to be exempt from the price caps, noting that Visa and other debit networks have committed to creating a two-tiered system to allow those exempt institutions from the price caps.
“In conclusions,” wrote Durbin, “I recognize that Chase will likely see decreased revenue from interchange reform, but I urge you to keep some perspective. Last year Chase had $17.4 billion in profits–up 48% from the previous year–and a 15% profit margin. Your own personal compensation “jumped nearly 1,500% to $20.8 million in 2010,” according to Reuters. In contrast, middle-class American families are struggling to get by in a tough economy –an economy that went south because of the banking industry’s unregulated excesses.”