Click below for Sen. Dick Durbin (D-Ill.) Senate floor speech slamming Bank of America on new debit card fees imposed in the wake of the reduction of "swipe" fees, a measure Durbin has championed. "The banks are in an uproar!" Durbin said
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Durbin's remarks TRANSCRIPT....
Mr. President, I want to take those who are following this debate on a little trip through the world of plastic. I'm talking about the world of credit cards.
In this case, specifically about debit cards. Because something happened over the weekend which has changed that world dramatically. And it's important for consumers, retailers, and voters across America to understand what happened.
On October 1, on Saturday, the rules on how much a credit card company and a bank that issues a debit card can collect every time you use the debit card changed. They call it a swipe fee. It makes sense. You hand them a credit card, or you do it yourself, and you swipe it through the machine and I pay for a transaction.
Back in the old days that I can recall, some people would write out a check. This is the new form of check. It's a debit card. And when you swipe it through the machine and the machine accepts it, the money comes right out of your checking account to the retailer, retailer where you did the business. It's very convenient. People are using it more and more. In fact, over half the transactions at most retailers now are done with either credit or debit card. What the consumer doesn't know is that there is a charge each time that card is swiped. It is called the swipe fee or the interchange fee.
It is established by what's basically duopoly or monopoly credit card companies, Visa and MasterCard. They run the whole show and have been under antitrust investigation in the past. They set the rules. Here's what the rules are. If you run a restaurant, let's say you run a grocery store in northern Chicago like Art Potash, a close friend of mine, family-owned grocery store. You say, I have to take plastic to do business. Visa and MasterCard says, you have to pay each time a customer swipes that card. It is a secret. Basically consumers don't know. The retailers do.
We passed a law here, an amendment I passed to the Dodd-Frank law to find out how much it actually costs the bank and credit card company to process a transaction with a debit card. Well, they came back after a long study and they said, if it uses a pin number, which some do, it's about four cents. If you sign it, it is about seven to 12 cents. And then they said, the average charge by the credit card company and bank for each swipe fee is 44 cents. Dramatically larger than the cost of the transaction to the bank or the credit card company.
Remember in the old days when we processed checks, it cost pennies no matter what the face amount was. But today every retailer faces the 44-cent average swipe fee every time somebody uses a debit card. You can understand that some retailers don't like this much. There's no competition. These banks and credit card companies tell them, this is it, take it or leave it. You don't like it, don't use plastic. And it is secret. Nobody knows it except the retailer, bank, and credit card company. A hidden fee and it is a killer for a lot of small businesses.
I was in rock island, Illinois, and Carl, who is the manager of the rock island country market, said, "we've got a special deal here, senator, people can come in and in the morning I give them a cup of coffee and a doughnut for 99 cents." pretty good deal in this day and age. Sure is, compared to what we pay. "I want to get them in the store." they turn around and go to the cash register and use plastic. I wasn't breaking even at 99 cents, now I am paying some bank and credit card company because people are using plastic.
That world changed last Saturday. The new law went into effect where the federal reserve established the ceiling, the maximum that can be charged for a debit card swipe fee that's issued by the largest banks in America. And the maximum now comes down to about 24 cents. Is this a big deal? Well, it certainly is, because each year now in the economy, swipe fees account for about $10 billion or $12 billion in additional charges to consumers and loss of profitability by businesses. And so you can imagine, $10 billion or $12 billion even after it's been discounted by the federal reserve to about half that $5 billion or $6 billion, has the banks in an uproar.
Mr. President, I guess it's a great honor now, but "the wall street journal" published a story on Friday, and they had one of their people that they invited in to comment and he said that this new bank fee that's being charged by Bank of America on debit cards is the Durbin fee. The same thing was said by another newspaper on Saturday. I am honored to be connected with this effort. What we are doing is fair to try to strike some balance in an industry that has shown little or no balance.
And one of the worst offenders in this is Bank of America, the largest bank in the united states. Did you see what they did on Friday? They announced that anybody who had a debit card at Bank of America was now going to be subject to a $5 monthly fee because of this reform. What I have said in the media and I'll say here is, Bank of America customers, vote with your feet. Get the heck out of that bank. Find yourself a bank or credit union that won't gouge you for $5 a month and still will give you a debit card that you can use every single day.
What Bank of America has done is an outrage, last week when they were charging each of their customers $5 a month for the use of a debit card, they went overboard. But it's nothing new in the history of Bank of America. Consumers across America and the customers of Bank of America are rightfully outraged. It is hard to believe that a bank would impose such a fee on loyal customers who simply are trying to access their own money on deposit at Bank of America. Especially when Bank of America for years has been encouraging their customers to use debit cards as much as possible.
It is particularly hard to believe this fee would come from a bank with a track record like Bank of America. After helping to drive our economy off the cliff's edge in 2008, Bank of America was happy to accept a $45 billion federal bailout for their stupidity, their greed, and their stupidity and it was just as happy to take that money and hand out $3.3 billion in employee bonuses in the same year 2008.
Don't forget the track record of Bank of America when it comes to handling mortgages. They picked up this company country-wide which had issued mortgages all across America that were going bad and now the record of Bank of America when it comes to processing these same mortgages is equally disappointing. When it's not losing paper work or refusing to answer the phone, Bank of America is foreclosing on families right and left. But at least this time Bank of America is being open about the new charge to its loyal customers.
In contrast to the overdraft fees, research fees, swipe fees, and other hidden fees that it charged, this time Bank of America is being up front about sticking it to its own customers. And transparency is a good thing. It allows customers, as I said to vote with their feet. Not every bank treats their customers like Bank of America. And consumers can decide whether Bank of America's values reflect their own.
Bank of America is the largest bank by assets in the united states. Now it is crying poverty saying it is forced to hit their debit cardholders with this new monthly fee because congress passed swipe fee reform. I don't buy it.
Here's the reality: Bank of America and banks in general are making billions of dollars still with this new reform in law off of credit and debit card swipe fees. Swipe fees are an estimated $50 billion a year money maker for the banking industry. $50 billion. Bank of America alone makes billions from swipe fees each year. But Bank of America didn't earn those fees by competition. Instead, Bank of America receives these billions because visa and MasterCard basically fixed these prices and retailers and consumers have no voice in the process.
This price-fixing has immunized the swipe fixing scheme in America. Now that Bank of America is out in the open, it is time for real competition. The federal reserve found that it costs a bank on average 7 cents to conduct a debit transaction, a signature transaction. It costs a lot less for Bank of America with its economies of scale but the fed found that Bank of America was getting an average 44 cents instead of 7 cents. You can't make that type of a profit margin, nearly 600% in a transparent and competitive market n a free and fair market, these profits would be competed down a reasonable level.
Without competition, credit card companies, these things, like bank America, will continue to win. Consumers and retailers and of course now the Bank of America's own customers will lose.
Today I have written a letter to the C.E.O. of Bank of America, his name is Brian Moynihan. I have told him that not -- it wasn't just me alone, but others have done a little calculation on his $5 monthly fee. And you know what we find out? When they thought that the swipe fee was going to be limited to 12 cents, Bank of America said, well, that will cost us $2 billion a year. Turns out the federal reserve said, now, it'll be 24 cents. So by our estimates, this new reform of the swipe fee may cost -- may cost Bank of America $1 billion a year in revenue.
Guess what? If you do the calculation, the $5 a month on the number of reported debit cardholders of Bank of America, this'll bring back twice as much as their projected loss on this new law.
They're overcharging their own customers. Once again, twice as much as they should if they just want to cover the hidden fees that they had in the past. That's unfair to consumers. It's unfair to their customers. It's unfair to do it in this tough economy when a lot of Bank of America customers across America are struggling to get by. What I'm basically calling on Mr. Moynihan to do is to justify this $5 monthly fee based on their projected debit card transaction losses and the number of people that they have holding debit cards by their company.
I didn't come up with this all alone. A gentleman by the name of Lazarus, a business reporter in California, he was the first one that called it to my attention on the Lehrer report on Friday night. It is clear again -- again -- Bank of America is overcharging its own customers.
Well, I can just tell you, it isn't the first time. Most people are aware of the fact that Bank of America was sued for overcharging for various fees like overdraft fees in the past. And because of that suit and the possibility of losing it, they entered into a settlement to pay over $400 million for overcharging their own customers. They're doing it again.
Bank of America, with this monthly fee is overcharging its customers again by any reasonable standard for a loss of revenue based on this new law. But the last point I want to make -- and I see some on the floor, including the senator who may have a different point of view, but the last point I want to make is this: when I was back in Illinois, I stood with the retailers, and I stood with the consumers of Illinois. Let's hear their story. They have been victimized by these banks and credit cards for too long.
We establish a reasonable standard of compensation and now some disclosure about what is being charged for transactions. I want to help small businesses and large retailers, too for that matter, across America. Their profitability, the success of their business, means more Americans go to work.
If you want to stand up on the floor of the senate and defend the wall street banks like Bank of America and the credit card companies, be my guest. I would rather stand with the consumers and retailers who've been taken to the cleaners by Bank of America is a reminder that when it comes to valuing customers, banks that don't overcharge for debit fees are the ones that deserve America's business.
Mr. President, I yield the floor.
DURBIN TO BANK OF AMERICA: CHOOSE BETWEEN YOUR CUSTOMERS AND EXCESSIVE PROFITS
[WASHINGTON, D.C.] - Assistant Majority Leader Dick Durbin (D-IL) blasted Bank of America's new debit card fee in a speech on the Senate floor and in a letter to Brian Moynihan, CEO of the nation's largest bank. Last week, Bank of America announced it would begin charging a $5 monthly fee for use of a debit card.
Durbin wrote: "[Y]our bank has decided to impose a significant new fee on loyal customers who simply want to access their own deposited money through a card that your bank gave them and encouraged them to rely on. I challenge you to provide specific and credible data that justifies imposing this monthly card fee. If you cannot provide such data, I challenge you to do the right thing for your customers and reconsider your decision. Based on the data I have seen, your decision to charge this new fee cannot be justified by any reasonable measure."
"First, there is no evidence that your bank could not continue to offer debit cards profitably just with the revenue you will receive under the generous maximum interchange fee rates that the Federal Reserve has established. The Fed found that it costs a bank on average around 7 cents to conduct a debit transaction, and likely far less for a bank with your economies of scale. Under the Fed's rule you will be allowed to profit handsomely by collecting around 24 cents per transaction. Your decision to charge a new monthly debit fee is an overt attempt to make even more profit off the backs of your customers."
"Second, I am aware that you and your industry seek to blame swipe fee reform, which I drafted and Congress enacted, for your decision to raise fees on your customers. However, this justification does not add up. According to industry analysts your bank has 38.7 million debit cardholders. Assuming that these cardholders remain your customers and pay your new $5 dollar fee, Bank of America will make an estimated $2.32 billion annually from this fee - on top of the enormous profit it will already receive under the Fed's swipe fee rates. Yet you recently claimed in an SEC filing that the revenue impact of swipe fee reform on your bank would be significantly less than $2.32 billion - even if the Fed had set a 12 cent cap rather than the 24 cent cap they established. It appears that your new fee will result in windfall for your bank with swipe fee reform as an excuse. I challenge you to prove otherwise."
"I know that every bank in America would like to keep the old swipe fee system just like it was. But our nation's banks need to learn how to serve customers well in a competitive and transparent market environment. For years Wall Street and the big banks have been playing by a different set of rules than Main Street, and it is time for that to stop."
A copy of today's letter is attached.
Before sending today's letter, Durbin spoke on the Senate floor and blasted Bank of America's attempts to pad their profits by picking their customer's pockets. Video of Durbin's remarks can be found here.
Finally, today's letter is similar to a strongly worded letter Durbin sent to Jamie Dimon, CEO of JPMorgan Chase, earlier this year correcting the record about what swipe fee reform means to the nation's largest banks. A copy of that letter - which still awaits a response - is also attached.