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Floor Statement on Tester-Corker Amendment #392
to S. 782, Economic Development Administration Authorization Act
Senator Michael B. Enzi
June 8, 2011

Mr. ENZI.  Mr. President, I rise today to express my strong opposition to the Tester- Corker amendment # 392 to the Economic Development Administration Authorization Act.   

The interchange fee debate is not a new one for the Senate.  This is an old discussion with both sides – financial institutions and retailers – bringing their different perspectives to the table.  I should know – I am a former small businessman and retailer.  My wife and I owned and operated NZ Shoes in Wyoming and Montana for over 25 years.

Retail stores have been clamoring for a change for years and felt ignored by the credit and bank card companies.  Stores with small priced items are forced to allow any sale to be put on a debit or credit card.  While some stores post signs that require a minimum purchase, they are violating their service contract.  If the fees were merely a percent of the sale rather than a minimum percent or minimum amount, whichever is larger, much of the argument would be gone.  Without the percent fees, small businesses have no leverage for negotiation.   

Soon vending machines will allow you to point your cell phone at the vending machine and click. You’ll get your snack or your soda and it will be billed to your debit card. But if the cost of making that purchase eats up the profits on the sale plus some money out of the vending machine owner’s own pocket, every time someone buys a soda or a snack, will the machine be available? No. You can’t be in business if you lose money on every sale. The vendor has an option. They can charge as though every sale is a debit card sale and increase the cost of the item to cover whatever cost the debit card company puts on your purchase. What you have right now is this hidden fee that goes to a card company. The card companies share that fee with participating banks. Banks are now saying if they lose that fee they’ll have to charge their customers in other ways. I’m told the average bank will have to make up about $150,000 in hidden fees that they’re now receiving that customers have been paying on their purchases and don’t know about it. Are hidden fees fair? I fight them every chance I get. 

According to the Wyoming Retail Federation, retail stores, hotels, restaurants, and other small businesses in Wyoming consistently report that credit/debit card fees have tripled in the last 10 years.  These fees have become a major cost, now surpassing other traditional costs for doing business.  This is a small business issue – small businesses are paying 2, 3, 4 times and sometimes more for credit and debit charges.

When I recently traveled to Wyoming, a businessman compared his expenses in the last five years to explain the effects of the interchange fee on his business:

  • Gross sales 2005 and 2010 - between $5 and $5.5 million a year
  • Percent of sales made on credit/debit cards—15% in 2005 and 37% in 2010
  • Sales in last 5 years increased 10%, Credit card fees increased over 100%
  • Credit and debit card fees as a percent of total sales - .3% in 2005 and 1% in 2010 – the fees tripled in 5 years

The retailer has no control over that. It’s a monopoly. When your bank raises fees, if you know about it, you can change banks. The debit card business is like a monopoly, so when the debit card increases their fees, the only alternative is not to accept the cards as payment. But the cards have become a way of life and they know it.

The profit margin of business is too narrow to sustain these increases.  This is why defeating the Tester-Corker amendment means saving jobs in my home state of Wyoming and around the nation.  Increases in interchange fees are cutting into resources that could be used to provide more jobs.

During the financial regulatory reform debate last year, Senator Durbin offered an amendment that tasked the Federal Reserve (FED) with studying the actual cost of debit card interchange costs, versus fees being charged.  I voted in favor of the Durbin amendment, hoping that it would create dialogue and a common sense compromise to this issue.  

I was trying to force this dialogue clear back in my shoe selling days. Card companies didn’t pay any attention. I tried ever since becoming a senator. I’ve been ignored. The Durbin amendment is the only thing that’s gotten the debit card big banks attention. Did they try to resolve it with the stores? The stores who were generating the sales and therefore collecting their revenue? Again, a resounding, no. they haven’t met with them at all. They’ve spent a fortune trying to convince you that their monopoly is ok and they shouldn’t have to do anything about it, that they have always been right, they’re still right, they’re going to be right and they don’t have to talk to their customers, which are the stores. I encourage the banks to listen and to negotiate but they chose to advertise the message to make stores look like the bad guys. They have spent a small fortune advertising and messaging. One day on my way to work I came by a place where they were giving out insulated coffee cups to give the message that the big banks were going to be put out of business by this amendment. 

As we all know too well, dialogue is occurring in the halls of the Congress, but this will not truly rectify the problem.  I agree that government should not determine a set price on fees, but if a huge segment of the economy makes a case for redress then it will likely fall under what I like to call the probable legislation rule number three – “If it’s worth reacting to, it’s worth overreacting.”  That’s not a good way to legislate, but it unfortunately happens a lot in Washington.  I have worked for years to bring retailers and banks to the table to discuss and negotiate interchange fees to make the system work better for both parties.  Since passage of the bill last July, there has been ample time for banks and retailers to work out a solution.  Dialogue between the financial institutions and the retailers has to occur now in order to find immediate and real resolution to this problem.

The interchange fee provision is an important issue that deserves full attention and consideration of both intended and unintended consequences but our nation’s retailers and small businesses cannot afford continued delays and studies.

Because what we’re doing today is, if it passes, is kicking the can down the road to keep things just the way they were. Oh yes, it looks like there’s going to be some interaction there. If the big banks win today, the customers of stores lose.  

Following the passage of the Durbin amendment, S. 575 was introduced this year by Senators Tester and Corker as a stand-alone bill to delay implementation of the Federal Reserve rules until the impact of those fees could be studied for another two years.  A similar House bill proposed to delay/study debit card interchange fee rule for one year. 

Now searching for votes, Tester and Corker have changed their amendment, so what we’ll be voting on today is a study and a year of kicking the can down the road. But even though it’s been changed, it’s still wrong. 

 My colleagues knew that I was not willing to support the original two-year delay, which would effectively bury progress made on this issue.  A two year study was kicking the can down the road to indefinitely delay any changes and prohibiting dialogue between parties.  I commend Senators Tester, Corker, Crapo, and others for working to decrease the study timeline from two years to 12 months.  As you have heard during this debate, the Tester-Corker amendment would allow for a six month study of the interchange fee rule plus an additional six months for the Treasury and Federal Reserve to draft a final rule.  While this is a step forward in finding resolution, more needs to be done to accelerate this process.  Another full year without a solution is too long for merchants and retailers.

Now there’s another problem too and that’s that the Fed will still be making the rule. You’ve got to realize that banks work with the Fed all the time. So banks understand the Fed. The Fed understands the banks. Retailers don’t work with the Feds. The Feds don’t check on the retailers. So, how do you think the rule that the Fed will write will come out if we kick the can down the road another year?

I think the banks will have a big advantage and what we need is for the banks to listen to their customers, the retailers. To listen and come up with a workable solution. The Fed isn’t the right place for that decision. The Fed just made a decision and the banks decide they didn’t like that decision and, quite frankly, for some of the small banks there is a problem because what was allowed for small banks to give them an edge isn’t ever going to happen because people will shop where it’s cheapest, which will be with the big thanks. So I think that the Feds did get it wrong and I don’t think that the banks will get it right unless there is something that is real to them. July 21, the current rule will go into effect. July 21, they will finally feel that it’s real and that they ought to sit down with their customers, the retailers, and get it figured out. I don’t think it’s that tough. I know where the changes were that I would have liked to have seen and I didn’t represent the whole gamut. But there are a few associations that would be viable to work this out. It doesn’t need to be done through legislation. But if today if we pass the Tester-Corker amendment, there won’t be any incentive for them to do anything for at least another year because the problem still won’t be real. The banks don’t think there’s a problem. The retailers know there’s a problem. The retailers’ customers are beginning to understand that there’s a problem. I just saw a survey from Montana and 75 percent of the people were opposed to the swipe fees that are currently in place. 75 percent. You know, America’s figuring things out faster than Congress is and we’ve got to be with the people. We’ve got to take care of the problems that they see, especially when it’s that huge of a majority. I don’t like doing things based on polls but I do like polls to give me an indication. I go back to Wyoming almost every weekend and I talk to the real people, I don’t just read it in papers or studies. I can tell you that 75 percent is probably just about right. It might be slightly higher than that in Wyoming.

So the banks and the retailers should get together and come up with a rule that will work for both of them, but not one that maintains a monopoly. When you sign on to one of these credit card agreements and you have to do one of those in order to be able to accept them and have the money work through the system back to you, you’re not given any options. There isn’t anything you can shop around for because all the agreements are the same. If you sign one of those agreements, you have to be willing to accept it no matter what the size of the purchase. Now, if you’re selling a soda for one dollar and you’re paying 44 cents you know that the soda company isn’t making enough to cover the 44 cents. So they’ve got to raise the price so that it covers the credit card but it also has to cover the other sales then because there is no way for them to distinguish one from the other. They’re not allowed to charge more for a credit card sale than they do for a regular sale and they shouldn’t. So they build in that fee and it’s just a hidden fee. You don’t know that you’re paying that fee, but it’s a huge fee and it takes away some of the profits on the small sales and that’s one of the primary areas that’s driving this whole issue. There are other areas too but that’s the simplest one that could be figured out.

So, both sides of this issue need to have a hand in negotiating power at some point in the debate.  That is why I strongly believe two things need to occur to fix this problem – 1. Any study should be no longer than six months in total length (study time and drafting of the rule) and 2. Banks and credit unions must come to the table with retailers and merchants to find some middle ground.  It would be more workable if bankers and retailers could negotiate an agreement.

They don’t need a study. The retailers know what the problem is. The banks know the problem better than the retailers. All they have to do is skip the study, sit down and work it out. I think it would be worked out before July 21. A deadline is always good. So we really do need to defeat that.

This is a tough issue for small business owners, merchants, and retailers because many of our community lenders have come to rely on interchange income.  No good comes from pitting our small businesses against our community lenders, in Wyoming or otherwise, and especially not in this economy.

Bankers already know what changes need to be made.  If they put more effort into forcing bank cards to be more reasonable, they can solve more issues.

I’m pretty discouraged now that I’m in the Senate they still weren’t listening but this bill has gotten them to listen.

No more delays should occur.  Interchange fee reform was overwhelmingly approved by Congress last year.  U.S. consumers do not need additional studies to tell them that they already pay the highest swipe fees in the world.  Delaying these reforms will delay urgently needed relief for American businesses and consumers - relief that can't wait any longer during this fragile economic recovery.

So today I ask my colleagues to side with the stores and their customers, otherwise we’ll just have another big bailout for banks. I yield the floor and reserve the balance of the time.