Durbin targeting interchange again

Visa and Mastercard ignored requests from lawmakers to hold off on raising interchange rates last month. But at what cost? Senator Richard Durbin, D-Ill., author of the 2010 legislation that ushered in debit card interchange caps, called chiefs of the two card giants before the Senate Judiciary Committee, which he chairs, on May 4, 2022, for a public tongue lashing. And he offered up a list of proposals he said would place "limits on Visa and Mastercard price fixing."

"The credit and debit card systems are not a competitive marketplace," Sen. Durbin declared, adding that lack of competition, in turn, leads to higher costs, less innovation, weaker security and fewer opportunities for new entrants. "It's a sweetheart deal for the dominant networks, the biggest banks and cardholders with ritzy rewards programs," he said.

The panel chairman then offered up a wish list of actions to inject more competition into the marketplace.

• Requiring card issuers to detail on monthly cardholder statements the interchange assessed on each listed transaction.
• Eliminating interchange assessments on the tax portion of card transactions.
• Allowing merchants to choose which card network processes each in-person and card-not-present transaction.
• Shaking up the card security standards-setting apparatus, currently run by Visa and Mastercard, by adding outside security experts.

More interchange regulation?

The hearing was called after Visa and Mastercard revised interchange rates effective April 22. Both companies typically revise interchange twice a year—in April and October—but had put off major changes in 2020 and 2021 in response to the COVID-19 pandemic.

Retailers and a bipartisan group of lawmakers had asked Mastercard and Visa to postpone rate increases again this year, but to no avail. "It's obvious, we're suffering from inflation. [We wrote to say] don't raise these hidden fees again. They did it anyway," Sen. Durbin said, referring to a letter penned by a bipartisan group of House and Senate members to Visa and Mastercard.

The senator's wish list also included a veiled threat of interchange regulation. "We need to reduce inflationary pressures by preventing network swipe fees from being jacked up to unreasonable levels," he said.

Executives from Visa and Mastercard balked at suggestions they jacked up interchange. "The net impact of recent changes [to interchange] is virtually neutral to the ecosystem," Linda Kirkpatrick, president of Mastercard North America told the panel. She added that recent adjustments included "drastically cutting interchange" on transactions under $5.

"We did not raise rates in April," Visa CEO Bill Sheedy said in response to questioning by the committee.

Not true, countered Laura Karet, president and CEO of Giant Eagle Inc., a regional grocery store headquartered in Pittsburgh. "We received a 300-page document detailing [Visa and Mastercard] fee adjustments including increases," she told committee members.

Both Sheedy and Kirkpatrick, however, insisted that average interchange rates across their networks had remained relatively flat since 2015.

Doug Kantor, general counsel foro the National Association of Convenience Stores, also testified, and insisted that retailers are not looking for new Durbin Amendment-style legislation. "We as merchants have not asked for caps on credit card fees," he said. "We think there needs to be competition. Competition and market pricing will help us."

Senator Chuck Grassley, R-Iowa, ranking minority member on the Judiciary Committee, urged colleagues to move cautiously on any legislation targeting interchange rate setting. Citing "passionate voices on both sides," he said, "There's a balancing act here that we need to acknowledge, and any future action should be carefully considered for possible impact."

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