Hearing on H.R. 2695, the “Credit Card Fair Fee Act of 2009"
Congresswoman Maxine Waters (CA-35), a member of the House Judiciary Committee, delivered the following opening remarks during a hearing on the Credit Card Fair Fee Act of 2009:
Thank you Mr. Chairman for organizing this hearing to discuss interchange fees. While we have yet to reach a consensus on this issue, I am concerned most with the impact interchange fees have on working families and the American consumer.
For Visa and MasterCard, competition in the card business has become more about pleasing the banks that actually issue the cards rather than the consumers who use them. Visa and MasterCard set interchange fees that merchants must pay the cardholder's bank. Accordingly, higher fees mean higher profit for banks, even if it means that merchants shift those costs to consumers. Today, as debit cards have become more commonly used, MasterCard and other rivals have raised fees on certain debit card transactions in order to entice banks.
Therefore, I am increasingly alarmed by reports that suggest banks may now be coercing their customers into signing for debit card purchases rather than entering a PIN code. Despite the fact that in any debit card purchase, the money will be withdrawn from an individual's checking account, the banks are now encouraging customers to sign their debit purchases so they can charge the merchants higher interchange fees.
Just last week, in an article in the American Banker, it was reported that JP Morgan Chase is advising its customers to use their signatures rather than their PIN code when making debit card purchases. Although experts say PIN debit transactions are more secure than signature debit purchases, in a recent mailing, issuing Chase-branded debit cards to former Washington Mutual customers, the banking company strongly suggested the clients "always select ‘credit'" when paying with their debit card. While JP Morgan assured its customers that the cards were not credit cards, and the money still comes from their checking accounts, the company insisted the cardholders choose the "credit" option during transactions so they "won't have to enter their PIN in public."
In its mailings, JP Morgan implied that it's safer to use a signature when paying with a debit card, but experts say this is not true. Entering a PIN is actually more secure, but in this instance, JP Morgan discouraged the practice because it does not generate as much revenue for the bank. Now that many consumers are shying away from credit cards, the banks are doing everything they can to reap fees from debit card purchases.
While none of this may initially seem to implicate the American public, as credit card companies charge merchants more to accept their cards and process transactions, the merchants, in turn, pass those costs off to consumers by increasing the costs of their products. The Food Marketing Institute is also calling for interchange fee reform because of the impact the fees have had on the supermarket industry. On April 16th, Interlink, the personal identification number debit network run by Visa, increased its swipe fees by 30% for PIN debit purchases. These fees impact small independent businesses and grocers because they pay some of the highest rates and have no choice about whether or not to accept debit cards to remain competitive.
Some merchants even argue that there should be no interchange fees on debit purchases because the money comes directly out of a checking account and does not include the risks and losses associated with credit cards. In any event, merchants say they inevitably pass on that cost to consumers; the National Retail Federation says the interchange fees cost households an average of $427 in 2008.
Therefore, I look forward to hearing from our expert panel of witnesses as they help this committee understand the public interest concerns associated with the interchange fees.
I especially want to acknowledge Doug Kantor, a partner at the law firm of Steptoe & Johnson in Washington D.C. Doug grew up near my district in Los Angeles, CA. Early on in his legal career, Doug served at the U.S. Department of Housing and Urban Development, working to improve affordable housing and bring opportunities to places in need. Doug's father, Mickey Kantor, and I have been friends and worked closely together during my years in the California State Assembly. I have no doubt that Doug will provide this committee with vast insight and knowledge on this issue.
Therefore, Mr. Chairman, while I must leave the hearing to chair my Financial Services Housing Subcommittee hearing, I intend to submit questions for the record that I hope this witness panel will address in testimony.
Thank you, and I yield back the balance of my time.