Senator Durbin seeks to resolve credit card interchange fees

Card network giants Visa and Mastercard are under scrutiny by the Senate Judiciary Committee over an increase in swipe fees.

Visa and Mastercard say they need to raise their interchange fees (often called swipe fees) due to rising costs related to consumer rewards, anti-fraud measures and compensating issuing banks. They also claim that card networks face fierce competition from peer-to-peer payment apps, cryptocurrencies, and buy-it-now-pay-later services.

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

  • Rising swipe fees coupled with inflation will make it harder for merchants to compete;
  • Consumers will bear the cost of the increase because traders will be forced to raise prices;
  • Only the most affluent consumers will benefit from these increases (i.e. those eligible for higher tier rewards programs); and
  • Merchants are unable to negotiate with credit card companies or challenge increases because, according to the president, Visa and Mastercard form a duopoly.

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

The Iowa senator, however, would have recognized that a “balancing act” was needed between the interests of all parties. Indeed, he said an increase in rates might be acceptable provided “those rates reflect market forces” as opposed to a situation in which “interchange fees are set above the rates that would be found in the competitive market.

The Durbin Amendment, which is a provision of the Dodd-Frank Act, limits debit card transaction fees. Senate Democrats are considering using the Durbin Amendment as a model for capping credit card interchange fees. The President wants to regulate the industry in the following way:

  • Require companies to show consumers how much of their money is spent on swiping fees;
  • Prohibit exclusivity agreements that prevent banks from issuing more than one brand of credit card; and
  • Prevent fees “from being increased to unreasonable levels”.

We followed the Durbin Amendment when it was challenged and finally confirmed by the DC circuit. DWT will also monitor the rule’s transaction routing requirements appear in other contexts. For now, we’ll keep a close eye on Congress to see if it decides to impose Durbin-style restrictions on credit card transactions and swipe fees.

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