we're going to start hearing even the ranking member of any justice in here but since i've got the former chairman and the ranking member here  i think it's safe to begin then i know he's on the way but i'm glad that everyone's come together this morning to examine together this credit card fair free fair the act which is h r five five four six and  last year there was a hearing on the topic of credit card interchange fees and i was surprised by the depth of the problem facing merchants members on both sides of the aisle seemed equally concerned about these fees and the facts they ultimately have on consumers and so after deliberation with chris cannon  brought together a bill to be examined this morning we we hope it will go a long way toward restoring some balance between retailers and the credit card regular regulation of the industry we think that this measure were examining addresses potential anticompetitive aspects of interchange fees we think the lower interchange fees will help merchants and consumers and lower prices mr chairman i first like to ask unanimous consent that a statement by the electronics payments coalition be placed in the record at this point without objection i miss chairman i'm going to be very brief let me say i think this bill is a very ill advised to have a lot of unintended consequences in the eyes of the chairman and its supporters one of the things that plastic is done to benefit merchants is that they don't have accounts receivable of their older they get paid right away when people use a credit card to pay for their purchases and the credit card company basically assumes the risk of somebody not paying their bill when i started out practicing law i represented a mom and pop grocery store and there are a number of folks in town that never seem to want to pay their bills and as a result i have to try to collect money and really wasn't very successful in doing so and as a result the small business operator ended up having to absorb the loss by basically being good people and extending credit to folks and out their credit cards and the way this is set up now sure the small business operator from having to deal with those kinds of losses but nothing in life comes free and part of that is paid for by the interchange fees that merchants that except credit cards so i think that we're going to have to look at the impact on small business of this legislation as well as the impact on consumers and  merchants that take the credit cards and i think that the current situation is actually a big plus for both consumers who pay their bills as well as small business operators and i'll talk a little bit more about that later thank  ten years ago almost eighty percent of all financial transactions involve checks or cash today fewer than half of all purchases are conducted that way and three years from now consumers are projected to use credit and debit cards for over seventy percent of all their purchases properly used credit cards offer many benefits for consumers and businesses alike for consumers they offer fraud protection payment flexibility the ability to track purchases and collect airline miles for example from merchants they offer guaranteed faster payment and the option to expand business is through internet and phone sales some studies have shown that consumers or use credit or debit cards at the time of purchase are likely to spend more than they would otherwise with cash or checks of course this growth has not come without its cost consumer groups complain about credit card practices that they think are unfair or your legal merchants too have had their complaints in two thousand and five the second circuit affirmed a settlement in which visa and master card paid thirty billion dollars the settlement arose from a case brought by a group of retailers who claim that the said master card had illegally tried tied to the acceptance of their credit cards to their debit card offerings today retailers continue to claim that visa and master card are charging excessive fees for the acceptance of their cards and that these fees are alternately passed on to consumers a group of retailers had brought a series of federal antitrust suits challenging the way that d c and mastercard set these interchange fees and that suit is pending in the eastern district of new york now for their part the credit card companies maintain that the setting of credit card interchange fees is a necessary part of their business that maximizes the number of consumers who are willing to carry their cards and the number of merchants who are willing to accept them and considering this legislation my primary concern is how it will affect the american consumer will the consumer pay less for goods and services interchange fees are reduced for merchants will those lower prices be offset by reduced credit card benefits and higher charges and fees on credit cards retailers have re some serious questions regarding decent master cards business practices for example the credit card firms must answer who sets the interchange fee and how is it set how much competition is there to merchants really have options when it comes to accepting and master cards in the end though thank you there are allies of california thank you mr chairman and thank you for this continued process of evaluating what is for me a global competitiveness issue as you know in this current form i haven't signed on to the bill but i have signed on to exactly what caused that bill to be brought we have to two interesting dichotomies here on one hand the efficiency of a global and universally accepted card system has benefited us and the rest of the world on the other hand the rest of the world has become convinced that the fees were too high and in many actually in most cases both europeans and other nations have artificially lowered those rates recognizing that when we look at competition if my visa card represents one percent in spain and four percent in the united states american competitiveness is at stake i deny no one i repeat no one the ability to make as much profit as they can justify but when you have by definition a monopoly and i don't say that in a pejorative way in fact we need a universal system we need a system that in fact is so complete as to have that kind of reach and power you have a city situation in which the united states government has an obligation to assert sufficient control to ensure that america is not put it an unfair disadvantage to that end i believe that the bill's attempt to have transparency is critical to deal with competitiveness on a global basis is critical i also believe that although it is well intended that there may need to be a to additional safeguards for two reasons one to make sure that this is an american solution and not simply an attempt to get to a global rate quickly secondly i believe that if visas rates by an arm's length relationship equivalent are to be lowered as i'm sure many of the authors would hope them to be that it be a soft landing so at the appropriate time when this bill is mature i intend on offering some input for amendments but today i look forward to hearing from all the parties about how in fact we can find a situation in which countries are paying dramatically less for the same service with my same credit card and last but not least quite frankly i would like to have will be asking one critical question and that is why is it that when i have discount rates of perhaps double between the highest and lowest i cannot pass that on in any way shape or form to the consumer it's an all or nothing i think that in fact has has allowed competitiveness but not competitiveness that the consumer truly understands is being paid for by the merchant that he or she does business with mr chairman thank you again and i yield back and appreciate the time thank you very much daryl i sa hearing we're talking about the high price that the grocers the restaurants snack foods you name it how that's related to energy how it's related to ethanol and requirements that a certain amount of  used utilized nowadays very interesting hearing but i do apologize for being late for this that's why i was light and i want to thank the chairman the just very distinguished gentleman from michigan for holding this important hearing and we have an expert panel of witnesses with us and i know we all look forward to their perspectives and therefore i'm going to keep my remarks very brief hearing this task force held last year and the resulting bill that we are examining today demonstrate how technology has changed the way individuals businesses and the markets interact with one another credit cards have brought consumers and merchants together in ways never thought possible there are more than fourteen thousand card issuers in the united states today with one billion cards in use experts predict that by two thousand and nine u s consumers will spend more than five trillion dollars using electronic payment systems in my district in cincinnati i've heard from all sides banks and credit unions and retailers and grocers and merchants of all types so i know this is an issue that's of great interest to an awful lot of people and affects many americans so i know that all members are interested in hearing this issue as i've said in these hearings over the last year in my view government intervention is not always the best remedy and we must be very careful not to do more harm than good today's hearing is about whether the market for credit cards is flawed to the extent that government intervention is warranted and again as i mentioned i've been trying to listen to every different  individual business that has an opinion about this to make sure that when this member ultimately acts will do so having considered all points of view so again mr chairman i want to thank you very much for holding this hearing and i will go back you mr chairman i appreciate the opportunity to introduce two of our witnesses today both from my part of california first is mr tom robinson who i've known for many many years he's the c e o of the san jose california based robinson oil corporation and has been with the company since one nine hundred seventy four last year tom was named vice chairman of government relations for the national association of convenience stores which is the association for convenience and petroleum retailing he earned his bachelor's degree in economics from santa clara university at home he is the past president of the society of independent gasoline marketers of america and is active in the california independent oil marketers association he is also a member of the twenty five year club of the petroleum industry and he and his wife lynn reside in los gatos they have two adult daughters and an adult son all of whom have followed him in the family business and it's a pleasure to see tom here in washington i also would like to introduce josh flown who is also a native californian and serves as executive officer and general counsel of visa incorporated which is based in foster city california mr flow and helped lead visa through its recent merger creating a global company and its i p o in march of this year and that was the most successful i p o in u s history despite  is a former antitrust trial attorney he's a graduate of the university of california at berkeley he earned his j d from harvard law school he's a long standing member of the lawyers committee for civil rights and a senior legal advisor to earth island institute a nonprofit conservation organization i'm really very happy that these two individuals are here from california they don't agree with each other on this subject which just shows the value of our diverse community at home so i r fifty five forty six my name is tom robinson and i'm president of robinson oil corporation robinson oil operates thirty four right and robbie gas stations and convenience stores in northern california i'm here today representing the national association of convenience stores next which represents an industry of more than one hundred forty five thousand stores which more than sixty percent are owned by one store operators i want to thank you for holding this hearing today let me start by stating clearly next fully supports this legislation and urges you to swiftly move swiftly towards an excellent credit card interchange fees hurt my customers who in the end pay for them and hurt my business in today's market many convenience stores will not survive without the action of this critical issue the credit card their fee act will help fix this problem right now there is no market for interchange fees the fees are fixed by the banks hidden from the public and forced on  leave it offer right now the banks act collectively but merchants cannot the credit card therapy act would create a market for interchange fees for the first time by allowing merchants and the card associations to negotiate on equal footing the card associations claim there is no problem with the current system if i were able to fix prices with my competitors and make more than forty billion dollars per year doing it i suppose i wouldn't think there was a problem either of course just because the price pictures want to keep doing business the same way doesn't make it right i'm not an antitrust attorney i am a businessman but i know i cannot agree with my competitors to charge the same price yet that is priced precisely what the banks that issue cr i have done for years from my perspective the best way to understand the antitrust problem is looking at what would happen if the same situation prevailed in my industry nax does not and never has set the prices or terms for which member companies charge public but let's just say that we set a default price for gallon gasoline at nine dollars and that every member next across the country charged that the full price the speed at which this committee and the justice department would haul us in front of them for agree fault price would be dizzying i would fully expect someone to fit me for a not very fashionable yellow jumpsuit yet that is precisely what piece it does with its banks and separately what master card does with its banks all these banks that are supposed to compete with each other charge the same default interchange fees and the rest of us have no choice but to pay them because a huge combined market power abuse and master card wield with their banks and don't just take my word for it the kansas city federal reserve has found that merchants like me have no real realistic chose to waste but to accept visa and master card the impact on my industry is incredible and in fact i think their slides up there on the boards  if you take a look at these charts you'll see that in two thousand and six the industry paid more to accept cards and made in pretax profits six point six billion dollars to four point eight billion dollars the two thousand and seven figures are simply in comprehensible my entire industry made pretax profits of three point four billion dollars note that our profits went down by more than one billion dollars at the same time card fees increased by one billion dollars to seven point six billion dollars and we received nothing more for this additional one billion dollars or for the billion dollars the billions of additional dollars these fees increased in prior years processing the card swipe probably cost decent master card less than before but  paying far more than double our profits simply to accept cards it is clear that the price for the cashless society is way too high if you let the credit card industry set the rate every time you buy gasoline i ask you remember this station you're buying it from is likely pain more than twice as much in fees than it is making and every time gas prices go up the card fees go up right with them if you're concerned about prices at the pump you need to be concerned about interchange fees these days is simply taken over our industry my business is more for them than it is for me i don't even have time to describe the ways of decent mastercard create an a competitive abusive rules to make the situation even more difficult for businesses like mine but i'm happy to answer questions regarding these abuses the bottom line is that we need legislation to at least make this playing field level the credit card fair fee act is a critical first step to bringing market fundamentals to this nonexistent market critics of this bill say is government price fixing proposal nothing could be further from the truth the bill provides merchants an opportunity to negotiate reasonable terms with the car associations however if a deal cannot be reached there must be a way to resolve the differences in the event a deal is not reach each side will prevent a final offer the bill simply identifies a decision maker to pick the offer that is closest to what is happening in the competitive market at no point does this bill allow judges to independently come up with a price interchange they do the minimum necessary to say which side the better off are and that is this is just the type of approach that appeals to me as a businessman i negotiate negotiate the prices in terms of nearly everything that happens in my business this is the way americans businesses operate what i need is the ability to present myself to the card associations and to the banks in the same way they present themselves to me as a group the card associations should not be afraid in the heat on equal footing with merchants thank you for your time and i'd be happy to answer thank you very much attorney foam welcome distinguished members of the committee my name is josh flow i'm an executive officer in the general counsel of visa i have prepared some written testimony which i would request be submitted for the yours and everyone else's as well without objection you mr chairman there was also a report released just today from the g a o entitled credit and debit cards may also request that that be submitted for the record without objection it will be thank you i appreciate the opportunity to appear before this committee and what i'd like to focus on today are interchange fees i'm sure that this committee will deliberate and take action based on the facts and only the facts so let's get right to the electronic payments provide extraordinary value to retailers to consumers and to the economy visa connects over twenty nine million retailers over a billion card holders and over sixteen thousand large small and very small financial institutions what we do what visa does is provide the backbone or provide a platform for innovation in electronic payments products and services what we do do is issue cards we don't extend credit we don't set the rates and the fees to retailers and consumers which have been the subjects of their hearings that is not our function what is interchange and this is widely misunderstood interchange is a transfer fee from one bank to another that enables millions of stakeholders to participate in the system interchange is not revenue these interchange is not fee to retailers visa has no incentive to set interchange fees too high or too low it's not our revenue the reason that we set interchange fees are to drive growth in electronic payments which replace legacy systems such as cash and check and we think that electronic payments are much more efficient and beneficial to consumers retailers and the economy in general that's why we set interchange rates it's not our revenue now let's dispel a rumor that we've heard a lot about interchange rates increasing they are not increasing they have remained flat for ten years even though today's payment services are much more valuable than they've ever been in the past and finally our rates and processes are wholly transparent we've answered all the calls for transparency all of our rates all of our rules their telephone books think of them they are available on the internet and we've done that largely in response to the merchants saying that they like to look at them we've made them all available now i mention that our services have improved and become much more valuable the chart up here depicts on the bottom left what we call the old knuckle buster remember that's how credit cards used to work they were metal you drag it you had carbon paper and even though the rates have remained flat for all of this time we've innovated into incredible new categories debit cards they don't carry interest rates or late fees they're an electronic access to your checking account debit is bigger for us now than credit we've gotten into community cards local universities fireman's credit union cards except for all of that enabled by visa e commerce couldn't exist at all without electronic payments and we're going into mobile and contactless and into the future so our products are more valuable  point of sale over ninety nine percent of transactions the point of sale now really tronic instead of cash and check we've reduced fraud rates we've increased acceptance and we've lowered costs relative to cash in check just today's g a o report released today the government found that with respect to the government the government has paid three hundred eighty million dollars in in in acceptance fees for electronic payments in two thousand and six and they've saved one point seven billion dollars i'm not saying this is the g a o so you can see the cost savings by using electronic payments we provide retailers with guaranteed payment and as as some of you have commented it is the card issuers who bear the credit risk not the retailers now let's just dispel this rumor once and for all if we can these are our rates these are our interchange rates and you can see from one thousand nine hundred eighty eight to two thousand seven on an average blended basis they remain relatively stable at about one point six percent the so the rates have not been going up what has been going up is the use of electronic payments which yes it costs more in paying electronic payments acceptance fees but retailers save more not having to handle cash and checks and it's indisputable that the economy as a whole benefits from from this efficiency now what the retailers miss here what the price control legislation it is price control it takes rate making out of the hands of the marketplace it would give it to three judges there's subpoenas and depositions and it would take the free market and turn it into a regulatory proceeding and we believe that that poses a triple threat to consumers and i spoke to mr mazursky about this yesterday want to have continuing discussions with the consumer groups because this is an anti consumer bill with all respect mr chairman i know you care greatly about consumer in your district but what happens when interchanges artificially suppressed we've seen it now twice in other jurisdictions the retailers don't lower their retail prices they simply keep their revenue at the expense of the local community banks so that's threat number one to consumers threat number two to consumers is they pay more for cards and they get fewer rewards the reserve bank of australia there's a quote there are the regulators they found that themselves and in today's g a o report just released on page thirty six the g a o concluded that lowering interchange  australia meant that cardholder this is a quote cardholders of experience of the client in the value of credit cards reward points for most cards and an increase in annual and other consumer credit card fees so consumers pay more that's the second problem and third the retailers they have sued us sixty two times and in their lawsuit they want to impose additional checkout fees on consumers so you use cards so that's a triple hit to consumers now miss home of how much longer  two minutes mr chairman if i may all right without objection thank you retailers can and should negotiate their merchant discounts and they should not pay the sticker price there are sixteen thousand financial institutions within the visa system that would love to do business with mr robinson and they compete with each other to provide merchant discount rates in a very very competitive marketplace now this is i've got up on here  web web page from mr robinson's group the national so sation of convenience stores telling gas station owners how to negotiate their merchant discount rates and it says right on here that they offer interchange plus six cents that would bring his rate from two dollars and fifty cents down to a dollar seventy five so i'm not sure why they're not taking advantage of it finally and we do have mr blom from the community banks and credit unions here default interchange provides very important protections for the thirteen thousand local community banks and credit unions who are able to issue cards in competition with the larger banks suppressing interchange would harm these very small local financial institutions and associate general counsel and formerly was a partner with clifford chance rogers and wells welcome to our hearings good morning chairman conyers ranking member sh and members of the task force my name is joshua present it's my pleasure to appear before you today on behalf of master card to discuss h r fifty five forty six were brought together by a basic commercial dispute there are some merchants who would like to pay less to accept payment cards we fully understand the desire to reduce the costs of doing business and we have attempted to help them achieve this objective merchants are an essential part of our system and we are deeply committed to addressing their needs let me repeat that without merchants there is no payment system and as a result we have attempted to address all the issues raised by the merchants in this dispute merchants said that they did not have access to the interchange rates set by master card in response we now publish interchange rates on our website these rates provide an extraordinary tool for merchants to use when negotiating with their banks it is our hope that merchant groups will be encouraged to to use this tool to better educate themselves and their members on the full range of negotiating opportunities that exist today rather than seeking to arbitrarily lower merchant discount fees through government intervention merchants have also said that they wanted to see our rules in response we posted all of the rules that apply to merchants on our website a few years ago and we continue to publish more and more rules so that all of our operating rules will be available soon almost two years ago gas station owners said that rising gas prices were adversely affecting their profits when they accepted our payment cards in response we capped interchange fees on gas sales in addition mastercard has lower rates for supermarkets utilities and convenience purchases to encourage acceptance by these types of merchandise merchants can use all of these tools to negotiate better terms we would like to work with the task force to ensure a deeper understanding of the opportunities for negotiation our interchange cap for gas sales provides a good example we announced the cap in september of zero six we expected gas retailers to use this information to negotiate lower fees and to point to our initiative to lower the fees from our competitors we have been disappointed that most gas merchants have not taken advantage of this opportunity the merchant lobbying groups have made other statements that are patently false for example they have been saying that merchants cannot discount for cash this is simply not true under our rules merchants are permitted to discount for cash and each merchant is free to choose the manner in which the discount is offered they also state that merchants cannot tell cardholders the fees they pay when they choose to accept a payment card again this is not true mastercard permits any merchant to disclose to it to disclose its merchant discount fees to consumers mastercard also permits merchants to disclose their interchange fees to consumers the merchant lobbyists have even claimed that master card has a rule that requires a merchant that accepts master card to accept it at every one of its retail locations there is no such rule we are concerned that the opportunities to negotiate are being cast aside for litigation and legislation while the merchants seek legislation claiming that existing antitrust laws inadequate they are telling a different story in their litigation on the same issues i would like to offer a quote from craig wilde fang the lead attorney representing the merchants in their litigation against master card he said in november of zero seven just recently quote i actually don't think that the antitrust laws are in need of much reform although the antitrust modernization commission considered many proposals and proposed a few i don't think that anyone has really made a persuasive case that the u s antitrust laws are not working well to achieve their goals of enhancing and preserving competitive we agree and so did the antitrust modernization commission on which two of the merchant representatives sat when it concluded that antitrust exemption was like proposed here should be strongly disfavored as they quote undermine rather than upgrade the competitiveness and efficiency of the u s economy close quote as the task force considers these important issues please note that the parties in the litigation have agreed to mediation which began last month if a resolution  achieved through mediation it will resolve the litigation and all the issues raised in this basic commercial dispute in closing mr chairman we deeply appreciate your concerns about this issue we're committed to working together to fully address your concerns and resolve this commercial dispute without the need to move forward with ledge while we agree with you that free market negotiation provides the best way forward we have concerns about price controls and the antitrust exemption is in the legislation that w the merchants to negotiate in ways that violate the antitrust laws today rather than negotiating in a free market with the antitrust laws in place to protect consumers i'm prepared to answer any questions you may have thank you for i will try to try to get in one more witness mr john blow vice president of operations for chart way federal credit union  twenty years of experience managing operations both in retail and within the military we have your statement and we would like to hear from you now thank you good morning chairman conyers ranking member  members of the committee my name is john bluhm and i'm testifying on behalf of the national association of federal credit unions i serve as a vice president of operations for chart way federal credit union headquartered in virginia beach virginia chart which has more than one point two billion dollars in assets and serves over one hundred sixty thousand members now ask you and the entire credit union community appreciate the opportunity to participate in this hearing the electronic payment system has proven to be one of the most important advances in the financial services marketplace and is tremendously beneficial to consumers as well as merchants retailers reap tremendous benefits in the form of increased sales reduce costs for overhead substantially fewer fraud losses and immediate payment for goods and services i'd like to focus today on the benefits of the current system specific to the union community and our concerns with h r fifty five forty six the electronic payment system is incredibly incredibly important to the credit union community the system allows us to compete with the largest financial institutions credit and debit card products are important tools in developing and fostering relationships with our members and interchange fee revenue helps cover the considerable cost of maintaining the system capping interchange fees would provide an advantage to large financial institutions at the expense of credit unions we are much smaller than national banks consequently the credit union community will find it more difficult to offset the losses from a cap on interchange fees in contrast large banks will be able to internalize the loss h r fifty five forty six authorizes a three judge panel to set a single rate for a payment system credit unions have a higher per transaction cost for processing card payments further credit unions make up an extremely small percentage of the financial services market this panel may be compelled to set the rate based on the cost for a larger institutions as they process significantly more transactions smaller institutions would then receive a lower cap rate even though their actual costs are much higher and it will be doubly painful for credit unions first it will be more difficult to provide our members a credit or debit card without increasing costs elsewhere credit unions have a number of restrictions on their activities as well the stricter capital requirements as a result credit unions have fewer avenues to offset any losses created by a cap on interchange fee income second if credit unions cannot afford to offer card services to their members they will lose an incredibly important relationship building tool for many financial institutions energy change fees are not a huge income generating engine last year chart weight processed over fourteen million transactions the fees generated by each transaction are not pure profit the system does not simply run itself chart way employees eleven people for debit card support and we contract with a large service provider for our credit card portfolio interchange fees help offset the significant fraud losses associated with plastic cards in two thousand and six there was over one point one billion dollars in plastic card fraud losses in nearly all situations the financial institution covers these losses chart way rei our members in full for any fraudulent transactions we spend nearly four hundred twenty five thousand dollars a year to cover fraud losses and related insurance these statistics do not account for a number of other costs associated with each instance of fraud including issuing new cards and time spent working with members who have been victims of fraud it's important to note that debit cards and some credit cards generate little income outside of interchange  thirty four percent of our active credit card accounts are paid in full at the end of every month we do not receive any interest income on these accounts in fact chart ways essentially providing these customers a short term unsecured loan at no interest interchange fees help cover these costs in conclusion matthew opposes h r fifty five forty six the electronic payment system has been incredibly beneficial to merchants we understand why retailers would like price controls however we are wary of the government interfering with a valued product that is used by millions on a daily basis further we do not think the government should dictate prices between private parties a cap on interchange fees wire credit unions as not for profit cooperatives we will suffer finding it more difficult to offer credit and debit card services to our members those credit unions that remain in the card business was to adjust by either raising interest rates decreasing dividends or reducing services as financial cooperatives the ultimate cost of this proposal will be shouldered by the ninety million americans who are member owners of their credit union get a quick lunch and we will reassemble as soon as the votes are over and so we stand in recess for short period of time thank you very much judiciary committee from nineteen any one to nineteen eighty four so you're familiar with the process just a little bit welcome thank you mr chairman and the task force ranking member chavis are you ready is in on great thank you sir thank you so much for the opportunity to appear before you today to testify on this issue of extreme importance for the millions of merchants in this country and the consumers a service every day we appreciate your leadership in particular on this bill we endorse it sir we very much appreciate this for we represent today millions of merchants and obviously the consumers they serve in this country every day it's vitally important to the merchant's payment coalition we applaud your  we think it's a terrific solution to a real it to a big problem and we endorse it enthusiastically you know a few minutes ago mr fleischer told you that these are really doesn't care about the amount of  interchange is because because they get no revenue now that raises a really important question which is who really should be at this table and i will tell you while we are hearing today from the small banks and credit unions you really should not lose sight of really who visa and master card are and while there are approximately fourteen thousand financial institutions of all sizes that issue some sort of payment cards the top ten the top ten banks in this country control eighty eight percent of credit card receivables these banks mr chairman do not negotiate with merchants to set interchange rates as you would expect in a competitive market rather acting through their agents and visa and master card the banks collude to set high rates and honor us terms and they tell the merchants to take it or leave it governments around the world have scrutinize the conduct you are looking at today and their conclusions are the same as as ours a master cards interchange scheme is an a competitive it is certainly an odd consumer and it needs to change this system truly represents a market failure that needs an immediate fix merchants do not want contrary to what you hear merchants do not want or need price controls or industry regulation what they do need is a fair chance to negotiate market based rates and terms and that is exactly what h r fifty five forty six provides merchants do not object to paying a competitive market price for the ability to conduct payment card transactions they do have or however object to paying a price set by concluding scrutiny by colluding banks we've set forth a pretty detailed analysis of your bill we obviously think that it works it works well it's based on something that the committee has blessed in and worked on for many years and title seventeen involving sound recordings but suffice it to say at this point and that's great tail in my written testimony but suffice it to say that this is not a price control bill the fate of the parties under your legislation is in their hands at all times from the getting in they have the ability to negotiate they had the ability to give a final  and it's completely in their hands so you will hear price control price control price control but saying it a million times will not make it so mr chairman sorry let me address something today that everyone's going to focus on which is the impact on this legislation on all of us as consumers i can tell you coming from circuit city for ten years there is no more brutally competitive industry in america today than the retail industry i remember when a a plasma television at circuit city seoul for thirty five thousand dollars ten years ago and today that television sells for a thousand dollars technology and competition does wonderful things and on the consumer on the banks argument the side of the banks on consumers they have simply argued that if their cartel set interchange fees a lowered banks will merely raise their fees to their customers you know this is a truly remarkable argument no bank is entitled to the illegal revenues from high cartel prices visa and mastercard banks around the world continue to issue cards even though interchange fees in many countries are significantly lower than they are in the united states one more thing i would like to address with your with your indulgence mr chairman and that is that listening to the prior panel and seeing mr plump chart i would urge you not to be fooled by that charge as you might note it's in terms of percentages and not in terms of fees and while a percentage may or may not go up a certain amount fees have gone up by billions of dollars for doing exactly the same thing so i would encourage you to think about this in absolute terms and  also note that mr plum said that probably that he's had not gone up much since the days of the knuckle buster i thought technology was supposed to drive prices down not keep prices the same especially when they had been developed in such an an mr consumer advocate in the office of the national association of public interest research groups he's been testifying since nineteen eighty nine and been before congress the state legislatures on a wide range of issues and we're very happy to have you here and your written testimony is already in the record and you made any comments you'd like at this time thank you very much mr chairman and members of the committee as you said i have been working here in congress since one thousand nine hundred nine as a consumer advocate for the public interest research group send over that period of time the consumer advocates our group and other organizations have tried to rein in the unfair actresses of the issuing banks and other unfair practices the card network associations and it's been very difficult over the years to get any changes made lately we've seen some progress we are running a campaign on college campuses to go after unfair college credit card marketing recently the federal reserve board of governors joined the consumer advocates call to rein in the unfair practices of the card issuing banks and for years the merchants have been trying through a number of strategies litigation strategies convincing the department of justice to investigate to go after the anti competitive practices of the bank networks which until recently were owned and controlled by the biggest banks and i am unconvinc marketplace for many years those issuers had the office of the controller of the currency at their back they could do whatever they wanted they could change the rates at any time for any reason they could impose mandatory arbitration on consumers preventing us from getting any justice and the merchants who faced the same problem so when we look at this issue it's a very significant issue for us consumers pay too much merchants pay too much and when the merchants pay too much it affects consumers consumers pay more at the store and more at the pump because of the collusive nature of the agreements that are forced on them with no negotiations no transparency by the bank associations and i am very concerned for the un banked i'm very concerned that the twenty seven million people who pay cash at stores are paying part of the cost of internet change they're paying part of the cost of my rewards and i believe that it's fortunate that your committee is shining light on this important issue and you've certainly got the attention of the industry based on the size of the filled seats in the room what we're very pleased with is that your legislation the credit card fairfield act would create a non price control mechanism it would force negotiation increased transparency without going to price controls i've you know worked against the banks for many years they do their polling they know that price controls is in evil word on capitol hill so they use it in almost every statement that they make about every piece of legislation but i want to say that your bill is much more elegantly crafted than that i believe it is a commonsense approach to the problem that will force the two sides to the bargaining table i am unconvinced with the little pieces of the australian report that have been extracted by the bank  witnesses or by the network witnesses i think the reports are much more complex than that i think you see in australia that there has been more competition developed there are new kinds of lower cost cards out there debit card customers are getting lower rates and i think you are committing i'm sure your staff will take a very close look at what is really happening in the other countries that have restricted or bandera changed the way that the interchange system is forced on the merchants and i encourage you to continue to do that but we are simply not in any way convinced that the price to consumers will go up or that the merchants won't pass along any savings there will be there will be changes in the marketplace but there are consumers that need to be considered including the cash consumers and including the can simmers who carry a balance and have the basic credit cards the classic credit cards if i carry a balance on a credit card i shouldn't have a rewards card in the first place one percent rewards against up to thirty six percent interest that's not going to help me very much at all and some consumers out there the ones that i care about are paying thirty six percent interest under the unfair practices that many of the issuers are imposing upon them although the federal reserve is trying to stop it again we're very encouraged by the sunlight being the best disinfectant that your committee is shining on this issue we look forward to working with you to try to get the card issuers who have demonstrated market power according to the u s courts that have prevented the merchants from negotiating fairly with them that has raised the prices that all consumers pay your legislation is an important step forward to look forward to working with you on it thank you thank you very much  made you wonder more had you nearly blow your stack or what what what what are your feelings about the measure at this point i guess a couple of things  one it has not reduced my resolve and and and i think just to really hit on a couple of points for me is is that one is i'm not anti plastic i do recognize that they provide benefits the concern that i have which i think is been stated more than once and clearly stated is that there is a complaint about anti competitive behavior which you know which occurs with you know what we see in the high rates and some of the abusive rules and too you know we do we do hear the comments that you know this is some sort of price controls and i and i hope that that is come across clearly that the solution is not a price control mechanism so those are just a couple of my my thoughts are yes thank you turn  well i'm struck today hearing from mr robertson and the other witnesses for the merchant payment coalition they acknowledge the value that electronic payments brings to them but they want it for less money well  i guess that's the way of the world but the way to handle that is through the marketplace and through negotiation and i hope if we've dispelled anything today it's that we and the acquiring financial institutions stand ready and willing and eager to negotiate if we at visa thought that lowering interchange rates would drive more volume we would lower them tomorrow so we would like to negotiate with the merchants  that they would prefer our products that's the free market not price controls and with all respect to the witnesses if you look at the bill with subpoenas and depositions and three administrative law judges who would set a single price  that is not that's not the free market that is regulatory intervention setting prices so i remain as concern turned as when i started about the bill and what it would do particularly to consumers the final point if i can mr chairman is we we hear about subsidization and the problem with cash spenders subsidizing card users and we think that the subsidy runs in the other direction i quoted from the g a o report where with the increased use of electronic payments the g a o the government was saving more money the use of electronics is cheaper for merchants than cash and check and so as the volume goes up their savings goes up if there is a subsidy it runs in the other direction and electronic payments drive efficiency thank you mr chairman mr burris what say you thank you m chairman i'm actually encouraged to a limited extent in listening to my colleagues mr cannon and mr robinson in that i think the crux of their complaint is really about one thing and one thing only a claim that there is some alleged anti competitive conduct as a result of an allegation of market power and that that causes an inability to negotiate i think everything else becomes noice but ultimately that's their core complaint and the reason i'm encouraged is if that's really the crux of the complaint luckily for us we have a very effective system of antitrust laws in this country that have proven to be able to address these types of things including when mr cannon's firm brought a case against us in the past not just as mr cannon would have us believe for past conduct but also in changing future conduct now we don't think that that case will prove out to have any of the allegations that they make be true but if in fact that is the crux of the complaint then indeed the best defense against alleged anticompetitive conduct is enforcement of the antitrust laws for the purpose of free competitive markets as was found throughout the report from the modernization commission and i gave one quote but i'll give one other the antitrust laws stand as a bulwark to protect free market competition they prohibit anti competitive restraints that harm consumer welfare so i think that enforcement of those laws if in fact there is a problem is the best recourse rather than trying to set up an alternate process to address the same thing thank you thank you mr bloom thank you mr chairman my concern listening here today is that perhaps we're we're using that noise a little bit to cloud the issue and that for some reason we have some over simplification of what i view as a very complex system i think we're missing some of the some of the transference of technology issues that we've talked about or we seem to have a perception that it's as easy as swiping the card and then we somehow gouge some merchant for simply swiping the card you know i just bring to everybody's attention that the transference of of risk the transference of float on the funds to you know the transference of maintaining the system from a check or a cash based retailer to a card base processor is moved over on my side so i'm just concerned that there's some over simplification of the issues that we're using the noise to to speak about if technology has been that improved why haven't costs going down i would i would challenge the gas industry is an example i was surprised to hear that mastercard kept the interchange on gas purchases i think if this technology is so simplified i'd like to see the margin supplied at the pump so that when i use my mastercard to interchange income thank you mr cheney q before i go to mr cannon mr murs minsky mr chairman i think what's interesting to me as a consumer representative is that the the tricks and traps that have been imposed consumers seem to be paralleled in the merchant association relationship consumers don't always know and don't have the right to go to court to consumers have their rates changed at any time for no reason the kinds of ways that the banks have tried to expand their the volume of sales on consumers through the use of rewards and other things it just strikes me as a parallel and i know that consumers have are mastercard don't really get the benefit of interchange but what they get is dues and assessments is what it's called so again we really the question we have is  with now what you don't see here today is citi corp or chase one of the other very large banks that control the vast majority of credit card receivables in the country and i  don't know to my knowledge mr chairman i don't know of anybody that's ever successfully sat down with citi corp or chase to negotiate interchange right it's true we not an issue of market power here your bill obviously has a screen there that t about market power the question here is how did this how do we get to be where we are today how did these rates get to be as high as they are today and the point is we got this way because of a of a price fixing agreement that goes on today but tween large banks the fact that it's visa and master card that help control and run it is important but keep your eye on i would submit the most important players here which really are not at this table we should have invited the witnesses  perspective that less government is better and less regulation is generally better than more and that markets should be free and unfettered an unencumbered to the greatest degree possible and that competition is is is good for consumers on the other hand you know i want consumers to pay less and and be able to stretch their paycheck as far as possible and hopefully be able to save as much as possible maybe invest a little in better the family and i want retailers to be successful and hopefully employ more people especially in the first district of ohio and cincinnati which is my district so if each one who would like to if you could make your best case your best argument as to why in this particular case it's appropriate for us to regulate more because of the various issues that we've discussed this and in previous hearings because i think this is really a very important issue mr robinson you'd be welcome to go with just go right down the line anybody that wants to take a shot  thank you i agree with you i agree with you that less regulation is better specially when you have a competitive market i think that our complaint is this is not a competitive market and so you have to do something to make it  competitive i've heard that we had the ability to negotiate i think that negotiating ability is illusory and i don't think that exists there is an example that showed about up there about next having the goshi aided this deal on the interchange fees i think it's important to understand what next goshi did next did not negotiate interchange it only negotiating and negotiated the processing fee and if were to use the example it's kind of like having no ability to negotiate on the refrigerator you just get to negotiate on the delivery charge and that and that's that that's a situation so you know we would love to have the ability to negotiate we would love to have a competitive market and that's reason that we think since it's not it's not we don't have the ability to negotiate we do not have put a mark and that's a reason we're here talking to you today thank you very much  sheva thank you for the question there is no need to regulate or for the courts to determine that there's any kind of problem unless there's market dysfunction that's the only reason that there would need to be intervention either by the by the legislature or by the courts there's absolutely no evidence of market dysfunction if visa was a monopolist as the merchants like to claim because it's very rhetorical what we would be doing is we would be lowering output and raising prices that's what monopolists do but instead as i mentioned our rates have not gone up over ten years and over thirty years they've gone down significantly diners club was the first credit card network charge seven percent merchant discount rate today's average visa merchant discount rate is a third of that and our interchange rate has remained flat at one point six percent so we're not raising prices and we're not restricting output because everyone wants to use our cards and millions of more merchants are accepting the card so there is no indicia of market dysfunction my colleague here says well the volume goes up so the rate should come down that's what they're saying today but again that ignores the incredible innovation in our business it's not the same visa product it's not at all fraud rates have come down it's much more automated it works a lot better and instead of one product we have ten so the fact that we've held rates flat i think is quite remarkable given the innovation in our products and the tremendous benefits that we drive to consumers retailers and the economy in  you thank you mr press thank you first further encouraged that mr cannon still considers me a friend as we continue through these hearings more good news but i would like to take off on on the refrigerator example for just a second because i think it's very illustrative and i would say that what is really at issue here is negotiating about the refrigerator versus the condenser the ice tray the shelving inside and the other pieces like the power cord ultimately merchants negotiate for master card acceptance the fee that they will pay they negotiate that every day and no witnesses ever claim they don't with the hundreds of merchant banks that are out there and independent service organizations that are out there that provide those services and those fees have gone down over time as you would expect them to that is no different and i think this is very important point then the way that merchants negotiate with american express no merchant has claimed that they must accept american express they can't say that they have monopoly power as we've heard or now you know mr cannon saying it's not simply a question of market power it's a cartel ok fine same issue antitrust at its core they can't claim amex is a cartel or ever has been we don't believe we are either but they can't claim it as the amex they've always negotiated with amex they say that all the time and they pay more for amex than they pay for master card and i believe for visa at the end of the day the merchants can negotiate the fees they pay they also have the ability to negotiate certain interchange fees there are examples i'd be happy to go through with any members of the task force those examples in great detail but separate and apart from that they negotiate the merchant discount fees they pay every day they pay less for our system than a system that doesn't have all the alleged antitrust problems that they're claiming here in american express and i would also point out that merchants are the ones who initially invented credit cards and it cost merchants much more money to run their own system than to use ours and there's nothing that prevents merchants today from keeping their own cards creating their own cards offering cards together for acceptance many of them are utilizing rails built by companies that are just coming into the market like tempo and others today merchants invented discover sears invented it ended up selling it but there's no reason why merchants can't do that as well so there are many opportunities for them to change cost reduce costs or otherwise but ultimately they pay less for our cards and if they did it themselves they pay less for our cards and they do for amex where they don't allege any anti trust problems and they don't allege and billeted negotiate and leave it at that thank you m ledge on any kind of legislation is that you know if enacted from a credit union perspective the adverse or unintended consequences are not necessarily visible here in this bill first of all i've heard about protecting the consumer nowhere in this bill and this regulation says that once the three judge panel decides on some sort of capped rate that the consumer benefits directly from it there's no no legal requirement for that reduced if you will interchange to be passed on secondly i think that if you were to cap a component from a credit union you know position of interchange you don't also have to cap my fraud you have to cap my responsibility for fraud losses by you know another large retailers disclosing information that cost me money you have to cap my cost of overnight funds for those immediate settlements on my back and processing costs and if you don't say or a market failure what is the market dysfunction here it is the collusion and it's a price fixing that's gone on over a large number of years that that's the that's the market failure that that's the market dysfunction i'd also have to add from for m one more time he needs to talk about what his increase in revenue or fees are not what is revenue what is a city what is increase in his rates are there's a percentage and then there's a absolute revenue and that's a very important distinction the other thing i would also say is in terms of the merchant discount fee that is true the merchant discount fee is both interchange and processing fee on top of that but i will tell you back comparison processing fees is like negotiating for the flea on the tail of the dog it is a very small part of this and they know it and they know that negotiation is not possible interchange and i've never heard of anybody who has gone to a bank like citibank or  chase and said we have successfully negotiated interchange rights thank you mr chadwick the mr cannon mr robinson and pointed out that the there is no ability to negotiate anything other than the merchant processing fee i have no information to dispute that as a result of your hearings the merchants are finally starting to see little bits of the industry's paper and their rules they kept those hidden for years and years they're trickling them out now there are there may be available so i think there's just a clear example of market failure here the companies have market power they're abusing it but i want to point out just another example that was pointed out earlier that debit cards have no interest on them so we only need the the revenue from interchange to make money on the debit cards and there are a lot of unfair practices related to debit cards and consumers the cheapest and safest most secure kind of debit card is when you use your pin some companies charge you a fee to use your pin and give you a reward to use the unsecure signature based debit card they're also gaming the system of  much money you have in your checking account seventeen that we've heard about the forty two billion they make in interchange seventeen billion dollars a year goes to the banks in terms of tricking consumers into using their debit cards when they don't have any money in their accounts allegedly so i think there's just a lot of unfair practices out there and again i'll just say what's happening in the merchant universe seems parallel to what's happened in the consumer universe we've got the federal reserve stepping in on the consumer side in the consumer universe and from texas chairman thank you very much i want the audience to recognize that there has been a series of these very important task force hearings that i really believe shed light on crucial and important issues i hope the witnesses will take to heart the interest of the members ensuring that the legislative fixes which we happen to believe have merit are in fact an effective pathway so i want to thank the chairman for his initiative and i hope the witnesses will take this as an opportunity as i've seen that you've done to be instructive to robinson my my question to you is why in the marketplace as it is now postured you cannot survive or you cannot find a remedy on the interchange fees in terms of some mutual agreement let me be clear are you asking me why they won't negotiate with me i'm asking you why the market is not helping you at this point so you can answer it in any way you so desire why do you need the legislation i believe that we need the legislation because the banks and the credit card companies have a sort of favored situation where they have the ability to set rates and they can give us those rates in basically a take it or leave it type of situation we do get to negotiate with them on things like the processing fee i used a delivery charge in the refrigerator analogy and mr cannon used a flea in the dog analogy is probably closer to a better analogy so the reality for us is is that we do not have the ability to negotiate with them currently and you know that they keep saying that we have the ability to negotiate but make just because they say it doesn't make it so so that's why i believe that we need this legislation mr cannon build on that why do you not have the ability to negotiate interchange fees are represented by the industry to pay for their risk pay for the processing and paper they represent that there's some market discussion of important to to focus on what this means that there's so much discussion about negotiation and you just it's important to understand the tiny little bit and then and then the rest of it which is the bulk of this is the interchange fee set by m between banks with visa and master card the bank of the merchant and the bank of the issuer i'm am no ma'am all of the banks the banks that all get the interchange fee the issuing banks so that's the cities and chases and as i said earlier the maybe banks of merchants banks of merchants sure well if you're if you well if you're an issuing bank and you issue a credit card then that interchange comes back you absolutely no doubt about that but but the point there is that is not negotiated so you're suggesting that the merchants bank i happen to go to joe smith bank it's my friendly neighborhood bank they've been knowing me i've been having mom and pop grocery store for twenty years you're suggesting that that bank has issued me a card one that advocate for me the merchant oh that's absolutely true you credit card so you have that bank you're acquiring bank that's fine that bank can also be an issuing bank and the and it's the issuing banks that get the interchange and that's how that works so you  have to understand and there are banks all over this country that are both issuing banks and acquiring the banks all right they certainly are so so let's go to the point why the market does not work you're saying we put it the merchants put it a disadvantage let's see if we can get it precisely why the market does not work because as the system exists today there is no ability for the for the merchants the merchant community to essentially to negotiate to understand to try to do something in the marketplace now retailers as a whole and certainly tom they're used to negotiating for every single thing every aspect of their business every day except when it comes to credit card acceptance and they have learned long ago  that just simply is not a possibility and the reason it's not is because of how this is developed over time because you have all of these banks which over the years have essentially gotten together and agreed this is going to be the amount that we're going to charge each other and as you know there's there's litigation on this today there's there's fifty lawsuits in new york that are alleging that that agreement constitutes price fixing good old fashioned price fixing getting together i worked at circuit city i knew that circuit city and best buy couldn't get in a room and decide what the price of tv's are going to be however you have these independent entities these independent banks that get together with no intervention i'm sorry with no intervention no oversight no intervention well you know these are mass cards obviously a private entity these banks are private entities in the end these are roomful of competitors and i can't get a room with  my competitors and fix a price of anything and that's what has occurred over the years and so we have today a situation where we have enormously high interchange fees as we believe it by the way what one study showed that in terms of the amount of money that it cost to actually provide the service is thirteen percent of the total of interchange that means that's roughly eighty seven percent profit margin i'd love to have that but i can tell you that when i give equal time t islam look precisely at the legislative fix of the legislative structure which in layman's terms i believe simply opens the door to the retailer the merchant to sit in the room and to give an interes immunity or to be able to protect that discussion where you can come out with a rate that is fair what mr cannon said seems to be shocking that you have an eighty percent turnaround on profit when i read beck the fact that you've got paper machines  got risks what's wrong with having this kind of protection for you to have a discussion that just include a third party any protection against and i trust long thank you for the opportunity to respond congresswoman there is nothing wrong with negotiation that's the free market and i think everyone at this table is in favor of the free market and the opportunity to negotiate what's wrong with the bill is it's a negotiation with subpoenas and depositions and a three judge tribunals that would ultimately determine the rate and that's not the free market now if i could just explain about interchange because i think that there there's a complexity to this which is important to understand again the interchange rate is interbank transfer fee it's not what the merchants pay the merchants pay merchant discount rates and they should and can negotiate now as to this i've heard at least ten times its price fixing it's a cartel its competitors getting in the room there have been four courts in the united states that have looked  directly at this issue whether interchange is unlawful under the and i trust laws in united states every single one of those courts has found that interchange is pro competitive and is lawful you couldn't have a system without interchange because we have sixteen thousand banks and you might go to joe smith bank and buy say and buy something and your bank is joe smith and you might buy something from a merchant who banks with chase in order for that transaction to happen instantaneously securely at the point of sale there needs to be a rate that is pre determined that's what interchange is nobody has suggested that i'm aware of in the world that interchange should be abolished instead they're saying it should be lower you in a field to me for a moment i need to put on the record that i think the magnitude of the profit and the return that you're getting six hundred forty one million credit cards and growing one point seven trillion so even if this is a competitive fairness meaning that you already competitive the returns are enormous and the retailers are suffering what i understand is that as the legislation is structured there is an arbitration there is a first step there probably could be an agreement without yielding to the legislative fix if it would work if you would work and let it work in the marketplace by listening to the merchants and the retailers the problem we saw was that the only people that were part of the interchange and you have right wrist that should be addressed was enormously one sided we can find a way to get in the door you haven't shown us a way to get in the door we'd be happy if you would have us a structure  private market structure for these individuals to get into the door this gives them the door opening and we want to look for a way that this works but i think the fact that there is an arbitration first and then the court gives you some relief and i hear what you're saying and i'm not unsympathetic but i am very sympathetic to a sector of the marketplace that seems to be shut out if you want to finish the sentence and you know back here in the thank you again congressman for the opportunity i am not sure if you were in the room probably in another hearing when i mentioned that interchange revenues do not come to visa or master card we don't receive those revenues we said interchange to try to grow our system with respect negotiation i'd love to talk to mr robinson right after this hearing or any other merchant who would like to discuss how they can drive volume to our network in return for incentives and other ways that they can offset their costs so we are very much in favor of those have i don't want to use this very strong word of collusion but they certainly have an opportunity to speak to each other and i think that is the crux of our concern and i'll allow you to think about that as others question  you to be able to clarify that point for us mr chairman thank you very much and i you know bank thank you so much chair recognizes the distinguished gentleman from ric killer well thank you very much mr chairman and mr robinson i understand your stores operate under the term rotten robbi that right now to do visa and master card give you that nickname rotten robbie or that nickname come about you really want that story well you can tell about ten seconds ago i got about twenty other questions where well as a small marketer we needed something that was sketchy and somebody remember without having a major oil company budget and so we picked that name because people would remember it all right well thank you i'm i'm known as rotten ricky but for different reasons i miss my real same miss mr flamm i want to start with you  and i'm going to ask you all some questions on both sides so if it seems rough at times it will be easier later for both of you time permitting you made a statement that i thought was pretty surprising some stuff i agree with but the one statement really surprised me was interchange rates have not increased over the past ten years and before this committee on july nineteenth two thousand and seven we had steve smith the c e o of food city from virginia and he testified that in the ninety's his grocery stores were paying one percent interchange fees and now they're paying two percent more for premium cars he seemed like a pretty credible witness to me frankly last week on may seventh two thousand and eight bill douglas the o of a convenience store chain called douglas distributing testified that ten years ago they were paying one percent interchange fees and now they're paying two percent on average more for premium these he seemed pretty credible to me do you agree with me sir that and in fact the visa interchange for award based premium cards have gone up over the past ten years congressman cuellar yes and if i could take a minute to talk about rewards cards i think it might be instructive for the committee i've just asked my colleagues to put up a chart if i may that discusses reward cards right our blended average interchange rates have remained flat as i've mentioned over the past ten years we've introduced debit cards that have lower interest rates pin right and i've got your i got your chart and i only have five minutes so let me say if you look at that chart back in two thousand and two you thirteen percent of people using these premium cards and now you have sixty three percent or two thirds of the credit market is these premium cards right correct ok and so if you know you have two thirds of the market premium cards and cream premium prices have gone up then in fact these folks like mr smith and mr douglas were telling the truth when they're saying they're having to pay more for credit card interchange fees for rewards cards yes congressman but i just like to highlight that what visa has done is gotten into a market in each that was occupied by american express these are high spenders the cli they have rewards cards travel entertainment jewelry stores high end merchandise and look at our rates compared to american express and what steve basis points lower so it's less expensive for the retailers thanks to the fact that we've gotten into this they have gone up over ten years especially with premium cards and the fact of the matter is the guy sitting next  robinson with his small convenience store is absolutely required to accept the premium card along with the basic visa card correct yes that's correct ok and if the solution here is that he has the ability to negotiate with visa and master card into the free market principles as has been suggested by you and counsel for master card and ten years ago the interchange fees were significantly less around one point two percent according to one of your charts then would you agree today that mr robinson and his company will only going forward have to pay one point two percent inter fees you know congressman it depends again we brought debit cards to mr robinson and amazingly electronic fired his business so that he can operate on the low margins we've been able to his business to prosper and the debit cards are lower great totally about the debit card you're hundred percent right but my point is this guy didn't have the ability to negotiate with you because wal mart's the biggest employer in the whole country fortune one on the fortune five hundred and they had to bring a suit result and then a three billion dollars settlement because they themselves don't have the ability to negotiate and so if they don't have the ability to negotiate with you to get lower rates how the heck is a small mom and pop convenience store in a position to negotiate a lower rate it's on these premium reward cards that visa offers will congressman i i showed before this is mr robinson's organization not any this is next and this is how to negotiate with first data for a low merchant discount rate so he can and does negotiate through the national association of convenience stores which sell i think eighty five percent of the retail gas in the country ok mr chairman my time is expired but let me just say to i've got a lot more questions and a lot more that you like to answer other than those and i want i want to get to the other side too to be fair and hopefully as time goes by we'll have a chance to get the rest of the bank we got important folks wait and so you'll back the balance of my time  chairman thank you very much rick killer chair recognizes them or smith ranking member of the full committee thank you mr chairman mr cannon let me direct a couple of questions toward you five forty six passes what i want to know is what you think the consequences of the bill might be which is to say how much presumably the rates would be lowered as a result of the bill  are you going to benefit how are consumers going to benefit is it going to meet an increase in profit you are going to be lower prices to consumers who is going to benefit if this bill passes well i can tell you mr smith right now the merchant community and i believe justifiably so mind that she would make more profit i have nothing against profits but i'm just trying to get an answer as to who would benefit our consumer going to benefit from lower prices are you going to benefit from higher in this country and coming from a retail background is you know i've seen this every day for ten years and all i can tell you is of course retailers can agree what they're going to do or not going to do among each other that would be a violation of the law but i cannot fathom that as brutally competitive as retail is today that  somehow merchants would be able to keep a certain amount of benefit or money and not see that enter the competitive fray just knowing what i know about it just to me it seems really impossible to fathom how ever i'll say this i think that in terms of how this should be viewed that it's absolutely going to be pro consumer and that these benefits will flow into the into consumer pocket all right thank  you're not going to have merchants tell you that there is not a benefit here you know the credit system day is certainly a benefit but the question is it may be a benefit but what's why are we paying the rates we're paying today is  merchants because they threaten to use another credit card with a threat to use cash or they did use cash or they did use another type of credit card absolutely congressman there are all kinds of examples of where we've lowered rates particularly to drive increase use in certain market segments supermarkets we've lowered our rates dramatically gasoline lowered our rates over time utilities which was not a sector that worked for payment cards we introduced low rates to drive volume quick service restaurants here's an example we hear about how retailers can't live without visa or master card well mcdonald's and other fast food companies did very well without credit cards for years and years and years now they are using them why because it drives even more benefits to those retailers so we have rates that go down rates that go up it's very complicated in order to drive usage in particular sectors ok thank you and do you mr feinberg has any other member of the  l today can tell me a breakdown of how interchange fees are used in other words i've been told that about thirteen percent of the fees go to processing maybe forty four percent go to benefit something like that is that generally accurate or can you in the rest of the prophets can someone give me a breakdown on how or where those interchange fees go and how they're used congressman i can try to explain it in a very simple way which is the interchange  no direct from an accounting perspective there's no direct way to quit you can tell me what the cost of processing is you can't tell me what the cost of the benefits are is how those fees are used when i can tell you is that any individual bank that receives the fees can account for it in many different ways but it's their costs of loans the cost of guns and what's what's it like what's the average if you if you can't go buy specific and i mean if you want to go buy specific and forget that go buy the average give me a order of magnitude i would say that you could take i don't believe that interchange fees are directly used for processing and to be happy i thought that was one of the arguments made it's one of the arguments that the merchant side has made so you're saying that none of the interchange fees are used to pay for the process for the cost of processing what i'm saying is that interchange or did you just say that or not that i misunderstood what i'm saying is that the interchange fees are used by the issuing banks in order to cover some of their costs different issuing banks may use it for different things but it ultimately is far exceeded by their cost of lending their cost of float their cost of credit risk assumption their cost of fraud i mean i'm going to i know i have some more time because the president has already been said so i want to you mr keller a couple of minutes but having said that i'm disappointed you didn't answer my question i'll yield the balance of my time mr chairman at least two or three minutes to the german from florida mr keller a statement earlier about prior case law said that you guys have and violated antitrust laws correct yes and in fact i pulled the most recent decision the ninth circuit case of candle versus visa and just handed down march seventh two thousand and eight years certainly correct in that and i want to walk through the gist of what that says for our nonlawyers master card visa and some banks were accused of essentially engaging in price fixing conspiracy and collusion and the court gave the plaintiffs a chance to amend their complaint to be more specific and tell us the details and they came back and they after deposing the key witnesses had no details just legal conclusions and the court said i wanted out it's not enough just to make legal conclusions they said specifically tell us who did what home where and when that a fair summary yes or ok i then pulled the most recent class action litigation in the the eastern district of new york against visa and master card is a ninety eight page complaint you're familiar this this certainly litigation well i decided to reading this ninety eight page complaint from cover to cover and what i found was in fact more just legal conclusions and i'll give you a quote they collectively fixed interchange fees these are  legal mastercard and visa by agreeing separately and together to establish an employment and maintain a price fixing scheme whereby they fix super competitive credit card injured interchange fees nothing more then legal conclusions once again i think that's very fair ok with that as a basis let me just ask you and i'm going to ask you directly mr perez as well with your high position master card mr pereira's and mr flow have you ever had conversations or any one between master card and visa where you talked about acting together to fix the interchange fee rates at a certain amount absolutely not have you  ever conspired to with each other or with banks to raise interchange the rates no sir have you ever colluded either with master card or any bank on the planet to set in or change the rates wednesday do you have any evidence in terms of disgruntled employees witnesses documents letters anything that would contradict the test money mastercard  visa that they have never engaged in illegal price fixing conspiracy or collusion the consumer groups don't have anything like that i don't know whether the merchants do mr cannon do you have any specific evidence as requested by the night board of appeal to contradict what you heard today miss color couple things about that number one the issue here is an alleged conspiracy between master card and visa i don't think there are allegations about that that's actually the that is  well i trust i didn't need my ambien let me let me put it this way from from the merchant's perspective the question here that we raise is the conversations agreements and cetera but between the banks and that is the visa and the master card system and the fact that's what this legislation is is directed to do and point to doing is making sure that that the goshi ation me the agreement on that side is somehow  eliminated and that negotiations start with this legislation but the point is on kindle as you know virtually virtually no discovery done on that really a motion to dismiss on the depositions were taken the national guard visa that's correct massive amounts of discovery i believe in new york at this point to my knowledge i don't even believe that these or master card the parties that case have even raised candle as as didn't know that case had been dismissed i'm thinking you're going to see it down the road and  raised let me since you brought up this legislation you're a fan of it let me ask you this about this legislation one thing is very different in this conyers bill than the copyright roll t board and that is this when this three judge panel he decision and let's say it's mr robinson's little company versus the the big banks and mastercard and visa they are bound by what each side makes as their final offer so for example if mister robins says i want the one percent interchange the rate that we used to have ten years ago and mastercard and visa say and the banks say no we want a five percent interest rate that judge panel is required to take either one b essentially are allowed to make their own decisions the whole idea behind the legislation as i understand it is you want to make sure that that the fate were still in the hands of the parties and so therefore you would assume  that perhaps negotiation offers would come fairly close to each other you don't know for sure i just want to clarify that now i'll get to other questions later mr chairman thank you for indulging indulging us and we'll back the balance of my time for  i think the chairman since i have the army war college next i think because this isn't any trust house for us i should start off by full statement i do know mr cannon i did sell best buy and circuit in my last profession and they do hate each other and they do fight bitterly to the bottom the only sad truth is that when they can't make a profit after they beat down the prices they usually come back to the manufacturers suppliers like myself so for a moment because i view myself and i view everyone on this day as we're on the board of directors not the executive committee but the board of directors of the united states of america and we have an absolute responsibility to make sure that we do everything we can to maintain the opportunity for america to be confessed competitive around the world and the tragedy for us laws since the time of teddy roosevelt have been all about making sure that america is competitive because in the long run competition makes america do better globally i'm going to ask you if you could have the so called one percent rate that's available in spain and you could open a bank account spain and run your millions of dollars through that account at that rate knowing that it's a global market and those funds would be transferred for a dim in a most amount back in the u s dollars would you do that today yes so the absence of a global market in which other countries merchants the gas station in in madrid has a lower cost of a transaction even if it's my credit card my premium united airlines mileage plus card even if it's that card they have a lower cost of transaction than you do is that your understanding that's my understanding i have a no next year from visa so i want to be fair  my understanding is that some countries many countries around the world have set rates and the rates are lower than what mr robinson pays today thanks for the up to respond congressman you're welcome the merchants pay a merchant discount rate to accept cards and the merchant discount rate in the united states is not higher than many countries in the world it's right about the middle of the back the interchange rates have been reduced by regulation in certain places like the k and australia but that again is not the price that merchants pay so i think mr robinson's if he did compete with gas stations maybe he does and other parts of the world there are exceptions costs are about the same as his so it's not the case  that acceptance costs are lower in other parts of the world the interchange rate may be but again that's that's just an indirect cost not the cost that the merchants pay to their i appreciate that but i i never had an indirect cost that i didn't consider when i went from my top  line to my bottom line tell me why that doesn't make mr robinson more competitive if he's able to avail himself of a lower difference between selling price and net cash oh certainly cars when that would help him again but but but his cost is is his acceptance cost which he pays to his acquiring financial institution that's now in spain that that's what he wants lower that is what he's right so he's going to go to spain and he's going to work out a deal with a with the bank of madrid and he's going to he's going to accept people it is gas stations in dollars ok on us credit cards like mine but in fact it's going to be transported back electronically in real time every two hours batched through the internet and he's going to receive u s dollars transferred on a daily basis for a few but a few dollars it takes ten dollars for a wire transfer of millions of dollars a day now why in the world in a global market is he not able to avail himself of that and wouldn't that make him more competitive he thinks it would can we put up the chart on the on the different countries because i think this might help the point though is that there is a difference in these rates and  well i only care about america being competitive in markets working if a market works and in china or in australia or in bain or anywhere in the european union we're talking about particular in developed countries and it works more efficiently in that you accept the transaction for less money and it would make his business more competitive or more profitable whichever then i think he has a right to avail themselves of it and that's not what the bill is about this one of the reasons i haven't signed on to the bill is i'm trying to deal with global competitiveness because that's a responsibility so as i'm trying to dissect this what i see is somebody somewhere gets a better rate even with my credit card today than he gets and in a normal market and steve cannane obviously you know is very aware that you know the products sold at circuit city come from anywhere in the world and they come to minimum slee into the united states as far as exchange fee if you will in order to give him the absolute best product at the lowest price on a global basis my question to you and i'm going to indulge the chair like some of the previous ones but this is important is this committee as we're considering legislation regardless of whether the draft legislation becomes law why shouldn't we ensure that the most favored price you give to any like company is available to his and we're talking about based on a cost basis not necessarily based on your target markets because target markets are kind of a monopolistic thing cost and profitability tends to be more free market type decision and certainly on a global basis so when i looked at the all these things and look i want to be a fan of every one of your interest and the only way to do that is to ask the tough question here which is if you could work for less in spain why can't you work for less for mr robinson or for circuit city or anyone else if in fact in a normal global market they could simply open a bank account in spain well a congressman says it's a very important question we are a global company and it's very important to us as well i apologize i don't thing i have spain i do have spain on this chart so you can see that in the united states the overall acceptance costs are slightly where the low is one on the far left i can't see it from that says denmark ok he's now doing business in denmark is in a global market i got to tell you he skipped spain he went right to denmark and by the way he picked up cheese on a premium with every transaction again the acceptance costs are set by the acquiring banks in these different countries the interchange rate is just a part of that but if you went and in put a bank account there he would do better i he would do better in terms of the acceptance costs in denmark that is correct but he would do worse than in the netherlands and i'm going to close out and i and i'm going to say that i'd like to hear just short answers from the others when i look at denmark and i look at or bailey's or anywhere in the world below take denmark if everybody in the united states today skipped their u s bank went to denmark and said how low will you go in total cost knowing that that interchange fees starts off low and knowing that they can put hundreds of billions of dollars in transactions through denmark any of you believe for a minute that in fact you wouldn't find banks there willing to operate on an incredibly been sliver to give mr robinson and circuit city and best buy and all the other companies a more competitive rate when they're trying to offer the lowest price to the consumer if you all time the answer and that's it i have run out of time to ask i can't argue your point congressman but if you look at australia which i believe is maybe it's not or the u k where there has been regulation consumers are paying more on the other side of the equation so i in part that's what i'm going to denmark ok well in denmark is i we have to look at what consumers pay in denmark is for what you will see congressman is if in fact all the u s merchant started contracting with a bank in denmark in this scenario what you would see is u s consumers paying more on their cards we would see less cars made available to us consumers you would see rewards or other benefits go away for many of those consumers you would see the period of float time go away or be charged for you would see interest rates increase and many other things which are detail those results of exactly what happened in australia in a study i've submitted with my testimony so yes for a short period of time maybe it would appear like things are doing better but the long term impact would ultimately be that you would end up in a situation where credit cards here and if you look at all these markets that are mr flow chart this is the one market that has the most robust competitive marketplace for cards the most consumer benefits and the best products available the most diverse set of products so i think it's very important not to just look at one piece of the equation and say well that's the would be driven down there would be consequences and we're seeing them play out in some markets  today thank you congressman i think in in your example is a federal credit union not authorized to operate in denmark i do lose significant market share and membership and you know the member services i certainly wouldn't applaud or encourage any of my members  to move away from me to move overseas and my only concern here would be the currency transaction fees the volatility of the currency market what might happen switching their us dollars to the danish kro credit card industry is the most profitable form of banking by far and that's according to the federal reserve not me so i think the banks could absorb this and i think if the merchants went to denmark they'd figure out a work around but right now consumers in the united states are paying an awful their credit cards whether or not they get these so called rewards thank you and thank you mr chairman i very much believe that we need to make sure that we maintain a robust and efficient system in the u s so lest anyone think i'm inviting them to move their dollars offshore i'm not but i do want to make sure that all of us realize that usa inc has to be the most competitive in the world and that's the goal i think of all of us on the day s and with that yield to the gentleman from florida for another two going to defer to mr isay only because other not not because the concerns are not interesting but because other matters press on us all mr perez you were talking about all the competitiveness and the options that we have the american market that's true but it's not because of the interchange here or the way we regulate it as opposed to other markets because america is a more robust place to do business so we actually really want to keep that environment  use that credit card will understand those fees because they're explicit as opposed to the interchange fee which really nobody ever gets to talk about isn't that the case thank you congressman i think that's a very important question and i think that whenever a consumer goes to a merchant and uses any form of payment there are costs inherent just as the question the question is is there not some benefit from having explicit cost versus hidden costs again mr congressman i don't believe there are hidden costs i believe that when a consumer goes to a merchant and chooses how to pay for a good or service there are many costs involved and i think as mr flown stated earlier it's our belief that many other forms of payment like using a card from the retailer american diplomats would give you a list of the series of alternative costs that could be imposed on that transaction the one thing that is very consistent about those alternative costs is that there are understood by or at least available for understanding by the by they the consumer whereas the consumer has no idea about what or how much the interchange he has and he has no way of accessing that and the merchant has no way of negotiating that that's a hidden cost and but we've got a sort of the term we're using here is there not something better about cost or more transparent we absolutely have no problem with transparency and encourage merchants to go ahead and tell consumers exactly what those costs are for them when they're making when did you just start encouraging work since we have always allowed that we have always allowed that you know you had a practice of telling merchants they can't offer cash discount they can't tell what the what the cost is we do not we do not and have not disallow discounts for cash we were surprised to hear that merchants actually thought they couldn't do it and encourage now that we can tell them they can't thank you you said in your earlier testimony that you talk about several things that you're making the public like your posting rates on your website you're publishing more and more i think was the term used of your rules when did you start doing that but we've always again permitted the banks to contract with merchants to provide the merchant no no i'm asking you those you took actions that you touted a few minutes ago about four years ago was the first time that we did it prior to that time we had a rule that required the banks to contract with merchants to provide the rules to those merchants in their merchant agreements we were made aware by merchants that they did not feel that they had access to those rules so four years ago we published what we believed to be the set of rules that were we're covering merchants we were told by merchants and asked by merchants for other things which we've now published and we're now going to publish all of our operating rules are in the process of doing so good and when did you ramp up the rate at which you began publishing we publish the first set four years ago we published another set about three four months ago and then we have been starting in recent days to now get the rest of the materials ready to be published and when did you start publishing your fees we started publishing the fees in the fall of two thousand and six good i think this discussion over this bill in the direction of the bills actually had a slew of fact on the transparency of this market appreciate  transactions a skyrocketed yes or no and therefore the gross income the revenue has is skyrocketing yesterday and at the same time virtually all other electronic transaction processing fees have plummeted so i suspect that the actual cost of approached the last weekend by somebody who does it is concerned about the fact this bill so you have other people that actually perform services for you on the card issuing side on the acquiring side there are many third party processors yes so what do they do in relationship to what visa does as processing well we are the central switch so the transaction between the acquiring bank and the issuing bank that's what we do we switch the transaction and we settle between those two banks ok so the acquiring banks or the merchant banks have processors the prepare information for you and then take it to your central process for example first data is a large merchant processor and there are also some small merchant process yes you have the costs that those people have been reimbursed for state or smaller  operators they declined i don't mean to answer your question directly it really depends on the type of transaction for a standard transaction perhaps but they're much more complicated today with automatic authentication clearing settlement fraud control verification of that risk and so forth so i can't say that in all instances it's gone down but it is a decline if you're looking at it it's just a scale business you could make that argument but again because it's a different product and service i don't think that's an apt analogy with all respect well in other words you've got more service involved you've got a better product a higher quality product that is being had this happening and so there's some tendency to raise the value because that quality but you're not suggesting if you're having a hard time say this but in this regard almost all prices been falling where you had automated transactions what we've done in recent years congressman is we paired together our products and our processing services they are one and so to that extent i can't say that that that the cost has declined just because of all all the added value that comes with the product in the processing services and of course price declines tend to r fifty five forty six is that it is a price control bill if we amended the bill to remove the three judge panel that still kept the added trust exemptions in that i may be adjusted those a bit  for the merchants and banks to negotiate the interchange terms would that be acceptable to you we would have a problem with removing the the with imposing an antitrust exemption because the merchants would not be imposing it would be it would be allowing an exemption to people if they wanted to get together and negotiate and today they can get together and negotiate congressman and there's many examples of that and i've cited several of them but my question was not whether they're doing what they're doing now but if we change the law on made it allowed them to go see it as a group is not something that would remove your opposition to this bill we would certainly it would certainly improve the bill we would need to study the n h s exemption again the negotiation is basically between the merchant community and the acquiring community and i've seen but that's just because the interchange view is outside the scope of the acquiring community in that right acquires can negotiate interchange with issuers and often do so what we do is we set to fall interchange rates we allow negotiation of those rates rates are frequently negotiated between issuers and acquirers the default rate protects people like mr blom the small credit unions who aren't able to effectively negotiate in the same way that the larger financial institutions can how many institutions actually negotiate i suspect that wal mart has how many others actually effectively negotiate well the the acquirers that have business relationships with large merchants or large groups of small merchants negotiate with issuers over the interchange rates in return published interchange rate is lower than the rate of the semester charge published merchant discount rate i'm not aware of any that are lower than interchange i'm aware of many that are very very close to the interchange rate such is the  three administrative law lawyers but as far as as antitrust exemption goes i'll simply quote from modernization commission as to why we would still have a problem with that which is that they should be disfavored they should be granted rarely and only where it's necessary to satisfy a specific societal goal that trumps the benefit of a free market to consumers and the u s economy in general so it's not that you offer an antitrust exemption according to the modernization commission to deal with an antitrust problem it's that in fact you offer an antitrust exemption in lieu of and in fact to the detriment of what the antitrust laws would otherwise and for so it's are the balancing act was sort of be implemented by a vote of the house in the senate sure absolutely and  we think that from our perspective what that would do is harm competition and harm consumers because whether the prices went up or down as a result of that when we set our default interchange rates we do so to maximize the output of our system we do it to increase the number of merchants that accept our cards we do it to increase the number of cards that are issued and we do it to increase consumer usage of our cards and we think we're doing it incredibly effectively and legally today isn't all that done within i'm not and i pro think there should be profitable but isn't all that done within the three things you just stated are done in the context of how you optimize your profit so you say how do we continue to grow etc while still making the most profit absolutely and leave us a unilateral decision in a marketplace that has no way to to effect that portion of that decision we make a decision as to a default rate it's not unilateral in the sense that there are many many actors who choose to participate or not participate or to go to visa or american express pay pal or to many other payment systems that are available many new ones that are coming out it does not exist in the abstract and standing alone there are many competitive forces that play into how we set those rates do you have any banks that actually publish a  rate and interchange rate that is different from the default rate i'm not aware of any banks that publish any interchange rates but i am aware of banks that have negotiated interchange rates in connection with co branded cards in connection with honest traffic in connection with many other instances be happy to sit down with your office and go through many examples that are confidential and i would not want to speak about in depth here let me just ask  blom want to answer if you'd answer this question if in a change times do not generate profit to the credit card companies what purpose do they serve consumers are paying for the convenience of many credit cards with the security protections essentially understand and i think i've said it on the record before should consumers have to pay extra to pay for a good  functioning credit card or a good usury that a credit card may have i just put that on the table mr cannon can you give us a sense of how final offer arbitration  works in the private sector today and how you expect it to work in the context of the new legislation in light of that system do you view the legislation as government price controls let me yield to the three gentlemen who might want to answer  about the interchange fees i think in your testimony you've been representing that they're not profit then what are they and maybe i've missed it maybe you've already conceded that you're willing to engage in kind of marketplace negotiation that would give relief to these retailers congresswoman thanks for the question we are absolutely willing and eager to negotiate as i've said before at any time my phone line is always open as our merchant representatives interchange again is not and would that mean that you would bring the interchange feet down even mr robinson asked you along with a number of others we would certainly negotiate with anyone about driving volume to visa in return for lower rates absolutely that with respect to the interchange question again interchange is not revenue to visa and we don't set it with the purpose of making profits to visa it doesn't come to visa or master card it goes to the issuing bank and i think one of the elements is and i appreciate what you have said and that is on the wreckage and we will be posing the serious questions to banks but i'll allow me to just ask you the question from your perspective it is profit is it not to the banks and you can continue to answer but someone is gaining a profit congressman perhaps as a credit union i can give you an example in chart why i place in my testimony that i did fourteen million transactions last year that it's not a windfall it's not in fact a profit you'll see in my written testimony that i named it at twenty four cents per transaction and that's net of some of my costs that you know we didn't include we didn't include in that net if you will return to our shareholders are our members the cost of marketing we didn't include in that the cost of brand repair when there's a compromise when our members go out and use their attempt to use their credit card at a restaurant and it's been closed because there's been a tragic you know large data breach and in order to protect a screw out of the small financial institution i've had to block and card my members didn't recall that to be t j maxx or to b j as it was chart ways card was closed or chart we did that or chart we did this they expect the card to work whether the card when they want to use it twenty four seven some of those costs associated with that pull into that twenty four cents more importantly years ago those fourteen million transactions equate to a little over five hundred million dollars that was transacted electronically in two thousand and seven for chart way  if we take it back ten years to when it was a check system and prior to the still larger surger twenty years chart we would have been you know enjoyed two more days on average of those funds to be in our institution where i could invest them in an overnight rate the immediacy of that payment system that interchange recovered for me if you will a small relatively small portion of what i lost by immediately deboning those funds and moving them out of my and you know we work with credit unions are you suggesting to me that you have there is no profit that you gain through the interchange fee there is an advantage i mean i as a credit union i use the word profit you know i'm able to but it goes back into your shareholders you must know goes back and hire dividends in a lower long right so there's an extended services so there are advantages but would you be willing to sit down and negotiate in the marketplace a response to the interchange in lowering it in negotiating the marketplace as a credit you know again i mean we're not staffed to be in that position to to go out and work what i would perceive to be a rather extensive and ongoing who are going to meet with today  again our service focuses on our membership we need these credit and debit cards in order to compete with larger financial institutions and i would i'd pull the committee how many committee members would do business with a financial institution as their primary institution if that institution could not provide them credit or debit card services let me let me appreciate that let me move quickly to mr cannon and mr perez i'm not going to leave you out and i'll let you finish last can i ask you a question do i need to repeat it for you or you are sure that i guess the question is as i recall the benefits of the arbitration how it would work or how this works today and how it'll all work in the sure it has been described as being onerous and burdensome well i can't fathom flamm talked about negotiation with subpoenas i don't think we're in the same bill because it has nothing to do with it if in fact negotiations successful that's the end of it and there is no proceeding and they understand that  this whole process is it's known as congresswoman as baseball arbitration which just says the parties all having negotiated if they can't come in agreement then they just simply each decide a final offer and then you give the this panel and this prayer and this particular legislation the authority to make a decision using a standard as to essentially which offer comes closest to a competitive market rate that's not very hard to understand i think it's going to be simple to administer and i will tell you the great thing about it it will a lot think you'll get the parties together because they will all understand what will end up being a competitive r profit of course you have to look at all their revenues and all of their costs if you took just interchange revenue took all of the revenue out and looked at that relative to the cost of running the card businesses that the banks run they would not have a profit they would have a loss because their costs of running it far exceed the interchange revenue and the perfect example of that is the fact that for american express to run the system themselves they charge a higher fee to merchants than our system does because they use that money to subsidize the running of their card business and when merchants run their own card systems it costs them much more than it costs them to take our cards which are much more cost effective for them and consumers than the cards that they issued directly to consumers which is why they've ended up using our systems or code branding their existing cards with our systems or outsourcing the management of their card programs to the banks that run our card systems because between lending credit risk worthiness to terminations monthly compliance requirements and statement thing in the like acquiring new accounts  looking at losses cost of funds and all the other costs that are associated with running a card program they are they are far in excess of what is received on interchange revenue so yes card businesses are profitable and yes interchange fees are a component of the revenues that are added up to make them so but that profitability is also competed away every day when american consumers receive the vast array of product offerings that they can choose from from a credit union like mr blossoms up through the largest banks in the card company has to expand or the bank we can provide you some some averages and particular banks would have to give you their specific if you could bring it on the card i would greatly appreciate it i do believe again to close that the six hundred seventy one million cars and one point seven trillion in revenues whether it is merchant's cards and or issue is which of the banks or credit unions that we can find some way to resolve what i think has come about because of the status of the economy we've got to find relief and frankly i welcome your discussion on this point and i yield back thank you the gentleman from the state of florida and in it it says that the market share collectively of visa and master card is seventy five percent with these at forty four percent and master card about thirty one percent does that seem right to you if you're just talking about  set the default interest rates and interchange rates is that correct yes or what is the single lowest default interchange rate available right now from i believe it's around one point two or so i might be off a little bit cars with that order of magnitude in the supermarket sector would be one of our lowest rates mr peres what is the single lowest default interest rate currently set by master card in the supermarket sector supermarket sector so in the supermarket sector yes or it's around one point two one point two is that is that a coincidence that master card and visa both have one point two percent as their single lowest default interest rates in the supermarket sector i think it's competition just like if you go to the corner and there are four gas stations they're all going to charge the same price for gallon of regular and what if tomorrow visa decides to go to one point three percent as their single lowest market and a default interest rate for the markets what would be the response of master card we would have to carefully consider whether we had an opportunity to drive more volume by not changing our rates or by lowering them we would look at it similar to the way we did in the gas cap situation where we said you know there may be an opportunity for us here we would have to take a look at other competitive factors like what american express is charging in that segment whether is gaining traction that's the case you look at the competition and you know that visa is charging a one point two percent default interest rate for the super march why don't you lower yours to one point one percent to take  advantage of the lower rates again if where we think we can do that as we did with the gas cap we do we've also recently when you say the lowest rate it's going to depend on the transaction size but we for gas for example if someone does other stuff i've been asked mr flamm a lot of questions here if over at rotten robbie's mr robinson decided to place a sign next to his cash register and says hey if you use cash we will give you a discount on some of the items here would he be allowed to do that yes would he would he be able to provide a discount if his customers use a debit card discount over the credit card under our current rules i believe not unwise because we do not allow our form of payment to be discriminated versus others in the electronic space on the cash side we've always allowed and continue to allow the discount for cash but when it that would he be able to first have a sign that says you can offer a cassis count absolutely congressman would he have be able to have a sign that says he can offer a discount over the credit cards if you use your debit card yes under our rules for pin debit he could also offer a discounted price ok you have said that you don't think that the retailers would pass along their savings if they did get a lower interchange fees that correct that's what the evidence suggest evidence and australia correct yes and also in litigation settlement interchange rates were lowered the walmart settlement and there was no passing along of those increased retailer profits to consumers all right i would think wal mart would think they offer a pretty good deal and they're doing pretty well that will let them speak for themselves or their big boys mr robinson you heard that you're not going to pass along any of the savings to your consumers let me just ask you point blank if if you have a favorable result either through legislation or litigation or you pay lower interchange fees or you want to pass along the savings to consumers are you going to take all the money and put it in your pocket as edition all profits petroleum retailing is a fiercely competitive business generally when costs go up generally when costs go up we increase our prices percent with rotten robbie's and it's going to be one percent well rotten robbie's get a discount when they go to buy donuts or gasoline or coca cola as a result of that taken interchange fees from two percent to one percent well i don't think the marketplace works exactly like that but your whole argument ultimately ultimately to answer your question the consumer will benefit because that's the sixty four thousand are question because your whole argument is you want lower interchange fees because better for consumers and so that's why i want to give you the chance he's saying it's not going to benefit consumers is it going to benefit consumers or not there's not a businessman that doesn't attempt to keep the margins ok but competition always drives it back out and when you have a competitive market and we definitely have a competitive market unlike some others those benefits will go back to the consumer all right my time's expired let me just give you one last question you said over and over you're you're a businessman and not a lawyer and i really respect that but i mean i sort of a legal question here anyway and that is when you look at this lawsuit one of the big things in bold that you see is trial demanded and there's a reason for that as someone who spent many years as a litigator often on the side of the big companies then in the interest of full disclosure but the little guy wants to have a jury  often the big guys would would rather not have a jury they'd rather have a judge or a an arbitrator and other folks so you don't have the possibility of massive inflated verdicts a motion that sort of thing and there's always exceptions but that's the general  you're seeking legislation that's going to put you in front of an arbitrator that is binding not a jury and in fact if you say you want to one percent fee and mr  says no we want five percent you are taking a real risk that this binding arbitrator may go with his side are you portable taking that gamble and putting yourself in that form as opposed to the jury trial situation short answers yes as we look at the problem and trying to do something about the confine anti competitive behavior of these and mastercard we looked at the various options we looked at the option of breaking it up like a t n t we look at it like having dealing with it like a utility and we've built this was a competitive market place solution that quite frankly we might not we might not do better with i have a hard time believing that we will not see your but your will in the gist of it is you're willing to take that gamble yes ok issues have been raised about whether or not you have bargaining power have you ever worked with a merchant bank that was willing to negotiate a lower interchange the rate no have you ever attempted to negotiate a lower interchange the rate with the merchant bank making open even know who to talk to so no chance you question oh well your own bank you can talk to right i mean the what's the acquiring bank you can talk to yes and we negotiate the acquiring bank we negotiate processing and it's interesting on the processing side that is fiercely competitive i mean it is amazing how aggressive the processing banks are so you have the processing right and they have negotiated processing fee and that has come down because of competition so you're able to negotiate with the banks in terms of the acquiring bank lower processing fees but you're be over ok that you've heard the criticism from mastercard and visa saying that this is price control because you're having the three judge panel set the rate some folks think it's only price control if you're  having the the government itself or bureaucrats at the rate or congress but they would dispute that but others may think that you're living under a price control system now since you have these two companies with a seventy five percent market share and they're telling you here is  the default interest rate that they're giving to the banks and and take it or leave it do you feel that you've got a price control situation now and if you feel that it's not price controls under the new scheme tell me why i i would basically call the existing system a price fixing system not necessarily a price control but the result is effectively the same so that's that's the existing situation and i think that when you set up an opportunity to provide for the parties to negotiate and yet you have something that holds their feet to the fire at some point in time they can't just you know stonewall the negotiation process  i consider that a competitive system mr flow let me go back to the bargaining power negotiation issue you've heard essentially that the little guys can negotiate with the acquiring banks to get lower processing fees at least least in the mind of mr robinson do you think that's a true statement they do have the power to at least negotiate with the acquiring banks absolutely and they believe they're charged a single fee for ability to negotiate a lower fee with my credit union the the so called issuing bank he does and his group the the national so sation convenience stores i would think would have quite a lot to say about driving volume to either visa or one of our competitors that's competition in return for favorable terms and so we so i'm very happy right after this to sit down surrounds and we can talk about it so you're saying not only can he negotiate with the acquiring bank he can also through some sort of organization like the convenience stores trade group negotiate with a variety of issuing banks as well as master card or at least visa yes or and again it's a very competitive environment and we would be looking for something that would drive home in return for lower rates i mean it's my time's expired and i think on the last person now so let me just do a short question to you mr robinson what percentage of your customers at rotten robbie's use credit cards would you estimate thank you right now cash represents the total company just a little over twenty five percent we have some locations we have some locations where we are almost ninety percent plastic ok well  five percent plastic i understand you're upset about the interchange fees that you're paying to the credit cards why don't you just put a sign up and say hey if you use your debit card i'd appreciate it or maybe even give you a discount since that apparently is at least allowed with the visa basically doing some sort of a cash count type of the or debit card yeah that is what i want you to tell him hey you know when they hand you a card they can use debit or credit want you to tell them they can use this as your debit instead there's there's a number there's a number of considerations number one the rules that visa and master card have make it more challenging to be able to do that you do run into some issues relative to the state weights and measures a challenge that you run into i mean we would prefer to be able to say yes to our customer not know and trying to do something where you've got different pricing is confusing to the customer it's very interesting if your credit card user often times you will not perceive that as a discount cash you'll consider it a charge for your credit or you're listening to what these smart guys are saying and they're saying hey if you don't like the credit cards fees just tell me as a debit card that's still a pretty good deal and it seems common sense to me if i were you i would probably be saying well i can't do that with everybody because for a debit card you have money in the bank and credit card you don't need the money the bank so it's not a perfect solution but i just want to give you the chance to respond to that because that's that's what you're here and let me go on and ask you this if you decided today that i'm mad as heck and not going to take it anymore and i'm not accepting mastercard and visa at rotten robbie's what would happen to your business model i don't think that is an option i mean when you're dealing with which ever number the that i said whether it be sixty percent eighty percent ninety percent you've got that much business   what's very interesting is if you look at all the advertise it's meant you know for pin debit versus signature debit if you come in with your debit card and you don't use the pin you don't use the thing that makes the card more secure that product doesn't go through the debit card network that goes to the credit card network i am charge credit card rates if you use your debit card so one of the things gets a little bit challenging is if you want to have a discount for debit it really depends on how it's used thank you i'm told to wrap up just in fairness mr flom on this hold that debit card issue do you have anything that you want to respond to about encouraging folks to use debit if you're worried about the high interchange fees for credit card and that will be my final question i'll let you respond thank you cards and just to clear up any confusion discounting is permissible it doesn't require to label separately every item in the store as we've heard from merchants so that would certainly be a solution for retailers that want to try to drive their costs down by steering is permissible under our rules to different forms of payment thank you thank you mr chairman for your indulgence i'll yield back and i just want to thank the witnesses so much for being here and being patient we we appreciate you doing that thank you mr keller i just had one question is there is there of these a triple crown this brown was going to pay part of his winnings out of that or not but thank you i would like to thank our witnesses for their testimony without objection members will have five legislative days to submit any additional questions and we would ask that you answer those questions as promptly as you can which will forward on to you know be made part of the record without objection the record will remain open for five legislative days for the submission of any other additional materials the hearing is adjourn