Durbin recommends transparency, reduction in interchange fees

During a May 4 committee hearing, Senate Judiciary Committee Chairman Dick Durbin, D-Ill., recommended reductions to interchange fees, following expectations of hikes by both Visa Inc. and Mastercard Inc. last month.

Durbin suggested credit card companies include interchange fee amounts in statements and said if customers had access to that information they might use less costly cards. He also recommended outside security standard-setting, no fees on sales tax portions of transactions and limits to fees.

In February, six trade associations representing banks and credit unions urged the Federal Reserve to reconsider its recent proposal to reopen Regulation II, better known as the Durbin amendment, and resist requests from retailers for further changes that the trade groups say would add to the regulatory burden associated with the provision. The Durbin amendment is a provision of the Dodd-Frank Act that limits the interchange fees that can be charged to merchants when processing debit card transactions. It also aims to encourage competition in routing networks.

In May 2021, the Fed proposed a rule change that would require debit card issuers to provide merchants with at least two network options for routing card-not-present transactions, such as online purchases. The proposal has not been finalized.

At the hearing, representatives of Visa and Mastercard said they do not earn revenue from interchange fees and responded to comments that they dominate the payment sector.

"We operate in a highly competitive market," said Bill Sheedy, senior advisor to the chairman and CEO of Visa. "Merchants have never had more choice at the checkout. Consumers have never had more choices to be able to pay."

Competing products include digital currencies and buy-now, pay-later services. Services from PayPal Holdings Inc. and Block Inc. are also available. Charles Kim, CFO of Kansas City, Mo.-based Commerce Bancshares Inc., agreed at the hearing there is competition in the payment sector. He added that the U.S. needs to keep up with countries like Russia and China that are evolving payment systems, and he said policies such as the Durbin amendment are limiting.

Durbin's office did not immediately respond to a question about next steps after the hearing.