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H.R. 2382, THE CREDIT CARD INTERCHANGE 

FEES ACT OF 2009; AND H.R. 3639, THE 

EXPEDITED CARD REFORM FOR 

CONSUMERS ACT OF 2009 

HEARING 

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

OCTOBER 8, 2009 

Printed for the use of the Committee on Financial Services 

Serial No. 111–86 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

BILL FOSTER, Illinois 

ANDRE ́ CARSON, Indiana 

JACKIE SPEIER, California 

TRAVIS CHILDERS, Mississippi 

WALT MINNICK, Idaho 

JOHN ADLER, New Jersey 

MARY JO KILROY, Ohio 

STEVE DRIEHAUS, Ohio 

SUZANNE KOSMAS, Florida 

ALAN GRAYSON, Florida 

JIM HIMES, Connecticut 

GARY PETERS, Michigan 

DAN MAFFEI, New York 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

BILL POSEY, Florida 

LYNN JENKINS, Kansas 

CHRISTOPHER LEE, New York 

ERIK PAULSEN, Minnesota 

LEONARD LANCE, New Jersey 

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on: 

October 8, 2009 ................................................................................................. 1 

Appendix: 

October 8, 2009 ................................................................................................. 53 

WITNESSES 

THURSDAY, OCTOBER 8, 2009 

Bourke, Nick, Manager, Safe Credit Cards Project, The Pew Charitable 

Trusts .................................................................................................................... 46 

Caverly, Mark, Executive Vice President, Local Government Federal Credit 

Union, on behalf of the Credit Union National Association (CUNA) and 

the Electronic Payments Coalition (EPC) .......................................................... 13 

Clayton, Kenneth J., Senior Vice President and General Counsel, ABA Card 

Policy Council, American Bankers Association (ABA) ...................................... 41 

Demangone, Anthony, Director of Regulatory Compliance/Senior Compliance 

Counsel, the National Association of Federal Credit Unions (NAFCU) .......... 44 

Duncan, Mallory, Senior Vice President and General Counsel, National Retail 

Federation, on behalf of the Merchants Payments Coalition ........................... 18 

Duplessis, Hon. Ann D., Senior Vice President, Liberty Bank and Trust, 

New Orleans, Louisiana; State Senator, District 2, Louisiana State Senate, 

on behalf of the Independent Community Bankers of America (ICBA) .......... 16 

Evans, David S., Lecturer, University of Chicago Law School ............................ 11 

McCracken, Todd, President, National Small Business Association (NSBA) ..... 42 

Mierzwinski, Edmund, Consumer Program Director, U.S. PIRG ........................ 15 

Miller, Kathy, Owner/Operator, The Elmore Store, Elmore, Vermont; Board 

Member, Vermont Grocers’ Association ............................................................. 9 

Shuster, Hon. Bill, a Representative in Congress from the State of Pennsylvania ...................................................................................................................... 1 

Susswein, Ruth, Deputy Director, National Priorities, Consumer Action .......... 39 

Welch, Hon. Peter, a Representative in Congress from the State of Vermont ... 3 

APPENDIX 

Prepared statements: 

Waters, Hon. Maxine ........................................................................................ 54 

Schuster, Hon. Bill ........................................................................................... 57 

Welch, Hon. Peter ............................................................................................. 58 

Bourke, Nick ..................................................................................................... 59 

Caverly, Mark ................................................................................................... 110 

Clayton, Kenneth J. ......................................................................................... 120 

Demangone, Anthony ....................................................................................... 129 

Duncan, Mallory ............................................................................................... 144 

Duplessis, Hon. Ann D. .................................................................................... 180 

Evans, David S. ................................................................................................ 191 

McCracken, Todd .............................................................................................. 194 

Mierzwinski, Edmund ...................................................................................... 200 

Miller, Kathy ..................................................................................................... 215 

Susswein, Ruth ................................................................................................. 221 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Gutierrez, Hon. Luis: 

Written statement of the American Bankers Association (ABA) ................. 228 

Page

IV 

Gutierrez, Hon. Luis—Continued 

Written statement of Blackhawk Network ..................................................... 240 

Written statement of the Credit Union National Association (CUNA) ........ 243 

Written statement of the Electronic Transactions Association (ETA) ......... 245 

Written statement of the Independent Community Bankers of America 

(ICBA) ............................................................................................................ 251 

Written statement of Congresswoman Betsy Markey ................................... 254 

Written statement of the National Association of Convenience Stores 

and the Society of Independent Gasoline Marketers of America .............. 255 

Written statement of the National Black Chamber of Commerce ................ 279 

Hensarling, Hon. Jeb: 

Written statement of the Financial Services Roundtable ............................. 280 

(1) 

H.R. 2382, THE CREDIT CARD INTERCHANGE 

FEES ACT OF 2009; AND 

H.R. 3639, THE EXPEDITED CARD REFORM 

FOR CONSUMERS ACT OF 2009 

Thursday, October 8, 2009 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The committee met, pursuant to notice, at 10:03 a.m., in room 

2128, Rayburn House Office Building, Hon. Barney Frank [chairman of the committee] presiding. 

Members present: Representatives Frank, Waters, Gutierrez, 

Velazquez, Watt, Sherman, Meeks, Moore of Kansas, Baca, Miller 

of North Carolina, Scott, Green, Cleaver, Klein, Wilson, Perlmutter, Carson, Speier, Minnick, Adler, Kosmas; Bachus, Castle, 

Royce, Capito, Hensarling, Barrett, Marchant, Posey, Jenkins, Lee, 

Paulsen, and Lance. 

The CHAIRMAN. The hearing will come to order. Before we make 

our opening statements, if there is no objection, we have two colleagues here. We all know what the schedule is like, so if there is 

no objection, I will go right to our two colleagues. And after they 

made their statements, we will get to our opening statements. 

We have before us two pieces of legislation. One is a bill to move 

up the effective date of the credit card bill that the House passed. 

The other is a new subject for us dealing with the question of interchange fees. The first of these is somewhat familiar; the second is 

not. 

We have before us two of our colleagues who are sponsors of the 

interchange bill. We will later today hear from one of the sponsors 

of the credit card bill. 

But let me now go to the gentleman from Pennsylvania, Mr. Shuster, I will go by seniority, and recognize him to talk about his legislation. 

STATEMENT OF THE HONORABLE BILL SHUSTER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF PENNSYLVANIA 

Mr. SHUSTER. Thank you, Mr. Chairman. 

I appreciate the opportunity to be here today, and thank—well, 

it is Ranking Member Bachus—but Ranking Member Hensarling 

for having us here today, and the members of the committee for allowing us to share some information on what I believe is an imporVerDate Nov 24 2008 17:41 Apr 21, 2010 Jkt 055812 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 K:\DOCS\55812.TXT TERRIE
2 

tant topic, an important issue, and that is interchange fees in H.R. 

2382. 

I would also like to thank Congressman Welch for his leadership 

on this issue and for working together with me on H.R. 2382. I believe action is needed to help level the playing field between consumers, small business, and credit card companies by requiring 

greater transparency and prohibiting unfair and abusive practices 

when it comes to interchange fees. Last summer’s dramatic rise in 

gas prices was a prime example of the inflexibility of credit card 

companies towards merchants and consumers over the interchange 

fee. 

As most of us know, fuel prices doubled, and the interchange fee 

basically doubled with the fuel prices while the credit cards did 

nothing to add value but were able to collect windfall profits because of that. Also, as fuel prices rose above authorized transaction 

limits, major credit card companies reserved the right to repay gasoline merchants a lower price than was actually purchased, particularly on smaller transactions. I joined with Congressman Welch 

to introduce H.R. 2382 to curb this type of practice. This legislation 

focuses heavily on transparency in the hopes of determining whether credit card companies are pursuing anticompetitive practices. 

And again, it doesn’t prohibit interchange fees. We just want to 

have some transparency and fairness injected into the process. It 

makes interchange fees subject to full disclosure in terms and conditions set by credit card companies, especially accessible by consumers. And we have here today, this is the interchange fee agreement, 1,000 pages. I am confident that few in this room could figure out what is going on in the agreement here. And many small 

businesses have that same problem in trying to understand what 

is happening in here. 

This H.R. 2382 would also prohibit profits from interchange fees 

being used to subsidize credit card rewards programs. Small businesses and ultimately consumers should not be financing the perks 

of luxury card holders. 

To put the impact of interchange fees into perspective of a business, I want you to consider a convenience store chain in my district, Sheetz; it is a real-life example. The Sheetz Corporation, 

which has 363 stores in six States, as I said, is headquartered in 

my district. Last year, Sheetz paid twice as much in interchange 

fees as they took in, in net income after taxes. Their second largest 

expense after payroll is the interchange fee, which is incredible to 

me. This means that, for Sheetz, the interchange fee eclipses the 

company’s cost of rent for 363 stores. The interchange fee is also 

11⁄2 times the cost of providing health care to their nearly 13,000 

employees. And Sheetz is not alone. 

Sadly, it is joined by thousands of businesses across the country 

who are being unfairly penalized through interchange fees. Something must be done, and I believe H.R. 2382 is the right vehicle for 

that change. 

Mr. Chairman and members of the committee, I hope you will 

consider the merits of this bill as well as the serious struggles of 

small businesses across this country that need transparency, simplicity, and fairness when it comes to the issue of interchange fees. 

Again, thank you very much for giving me the opportunity. 

3 

[The prepared statement of Representative Shuster can be found 

on page 57 of the appendix.] 

The CHAIRMAN. And another Member who has been very active 

in urging us to take this up, the gentleman from Vermont, Mr. 

Welch. 

STATEMENT OF THE HONORABLE PETER WELCH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF 

VERMONT 

Mr. WELCH. Thank you, Mr. Chairman. 

Thank you, members of the committee, for allowing me and Mr. 

Shuster to testify today. 

Credit cards are necessary in today’s economy. They do provide 

a service to merchants in the form of secure payment. They provide 

a great service to consumers in terms of convenience. And it is reasonable to expect that merchants pay a fair fee for this service, just 

as consumers should pay a reasonable interest rate on credit. 

But just as with credit cards issued to consumers, the near monopoly of big banks and credit card companies has led to abuse. 

The amount of interchange fees collected by big banks tripled from 

2001 to 2008, from $16 billion to $48 billion; 80 percent of that 

money goes to 10 banks; not to 10 percent of our banks, but to 10 

banks. Now, part of that is due to the increase in volume. But part 

is also due to the market power of credit card companies and big 

banks and to the fact that the interchange fees continue to rise so 

that now in the United States, they are the highest in the world. 

Credit card companies and big banks are also finding more ways 

to squeeze merchants, for whom the profit on an individual sale, 

as Mr. Shuster pointed out, can be completely canceled out by the 

cost of the interchange fee. 

The Welch-Shuster bill addresses these anticompetitive and abusive interchange practices. It raises four fundamental policy questions for this committee to consider: 

First, should credit card companies and banks have to disclose 

information about interchange rates? Our view is yes. And our bill 

would require that disclosure. 

Should merchants be able to freely advertise cash discounts without credit card company intervention? Our view is yes. This bill 

would ensure that merchants have that freedom. 

Third, should merchants have to subsidize rewards or premium 

credit cards from which they receive no benefit? Our view is no. 

And our bill would prohibit this practice. That would be an arrangement between the card issuer and the card user. If banks or 

credit card companies want to offer me airline miles, for example, 

my corner store should not have to pay. I should pay for that. 

Fourth, should the government be able to set rules of the road 

and require the banks and credit card companies to play fair? Our 

view is yes. And that is why our bill empowers the Federal Trade 

Commission to prohibit unfair or anticompetitive practices. 

Mr. Chairman, what is at issue here is a question of fairness and 

reasonable regulations. Credit card companies have near monopoly 

power. Individual merchants, one of whom, Kathy Miller from the 

Elmore General Store in Vermont, doesn’t. 

4 

And we welcome your consideration of these four policy questions 

that are presented by our bill. Thank you. 

[The prepared statement of Representative Welch can be found 

on page 58 of the appendix.] 

The CHAIRMAN. I thank our colleagues. 

Do any of the members here have questions for our colleagues? 

If not, we will thank them, and we will be in touch with them. 

Let me at this point, because we often have the most members 

here when we just start out, we have a third colleague who was 

interested in the credit card bill, the gentlewoman from New York, 

Ms. Lowey. I didn’t inform her in time for us to do the formal clearing process. Would there be any objection if she were to speak on 

the next panel? Hearing no objection then, Ms. Lowey can be notified that she can come if she would like to and is able to; I know 

that is always a problem. Our two witnesses are excused. 

Mr. WELCH. Can we stay for a few minutes? 

The CHAIRMAN. Yes. You won’t be able to ask questions. 

But is there any objection to the gentlemen sitting with us? 

No? 

That kind of undercuts my argument that you were in a hurry, 

but go ahead. 

We will allow the Members to join us, but the size of this committee prohibits us from giving questioning privileges because we 

never have enough time for our members. 

We will now begin our opening statements. We can start my 5 

minutes, please. 

There are two bills before us today. One, as I said, is something 

we are familiar with. That is the bill that would move up the date 

of the credit cards. I thought that we could have done it more 

quickly. We accommodated people in the industry who said, well, 

we need time to prepare. We said at the time, many of us, that if 

this time were used instead to take advantage, we thought, of the 

time lag to move things up, that would be very problematic for us. 

In my judgment, some of that has happened. Recently, Bank of 

America announced that it would in effect be abiding by the main 

portions of the bill right away. That is welcome both for the customers of Bank of America, but also because it is an indication that 

one of the large credit card companies—and they have a massive 

operation here—is able to comply, that the timeframe is not as bad. 

This is not brand new to them. They have known about it for a 

while. I think the case is very clear that this is the kind of protection that shouldn’t wait, and we should move forward. 

The interchange bill is different. It is new for us. It is a complex 

one. I will say, let me give a little history, I was on the committee—I am not sure any other members were at the time—early 

in the 1980’s, when Congress, and I know some of the credit card 

companies tell us we should not interfere and we should leave this 

to the free market, but that wasn’t their posture in the early 1980’s 

when they lobbied Congress successfully to pass a bill interfering 

with the right of merchants to do certain things with regard to 

credit cards. 

I thought that was a violation of free market principles and voted 

against it. I was outvoted. In fact, I was so heavily outvoted that 

5 

it passed on suspension and was signed by President Reagan. And 

I thought it was a lapse from free market principles. 

Those who argue that we shouldn’t be dealing with the interchange issue because it is interfering with the free market, my response has been, well, the best way to do that is simply to remove 

any legislation that regulates what merchants can do with regard 

to the credit card industry. 

But the credit card industry has supported and maintained support for legislation in which the Federal Government restricts merchants’ choices. And once you have done that, it is kind of hard to 

go back to being for the free market. The notion, having imposed 

that set of restrictions on merchants, it makes it harder to give discounts for cash; having imposed or to charge more for the card, 

having imposed that restriction on the merchants by Federal legislation, it seems to me very hard for the credit card industry to now 

go back and argue that they want to stick with the free market. 

It reminds me of the comment that had been made, I believe, by 

Harry Warner or Jack Warner in the motion picture industry about 

one of the motion picture stars, that he knew her before she had 

become a virgin. There are some things which, once lost, are not 

easily recovered, in my judgment. 

So that I think is what we have before us today. But it is a complex subject. It is a three-sided operation, because you have customers, the merchants, and the credit card companies. It is a subject that is an important one. Our colleagues on the Judiciary Committee had looked at it some from the antitrust standpoint, and 

they may still go ahead and do that. That is their jurisdiction. 

But we have jurisdiction as well. And this is the beginning of a 

serious look at this issue. 

With that, I will recognize the gentleman from Texas for 5 minutes. 

Mr. HENSARLING. Thank you, Mr. Chairman. 

Indeed, we do have two bills before us. Before I discuss them, I 

would at least like to acknowledge the absence of the author of one 

of them, the gentlelady from New York. Clearly, she is dealing with 

a great personal tragedy in her life. And although I have debated 

her frequently on the subject, she has certainly been a great professional in bringing this credit card legislation to the House. And 

even though I disagree with 80 percent of the legislation, to get 

something that is of this import passed through this House has 

spoken well of her. 

I am somewhat sensitive of debating the issue in her absence, 

but knowing that we have debated it frequently, I know that there 

are plenty of people on her side of the aisle who will be able to— 

The CHAIRMAN. If the gentleman would yield, I thank him for 

that gracious statement. 

Let me say on behalf of our colleague, Ms. Maloney, she is fully 

understanding of this. And I am sure she will be appreciative of 

the sentiment and, of course, has no objection to the gentleman 

going forward. 

Mr. HENSARLING. Thank you. 

I think before considering the implications of either of the two 

pieces of legislation, we need to take a very careful look at where 

we are in this economy. 

6 

Since we have passed the President’s economic stimulus program, unfortunately, another 3 million of our fellow citizens have 

lost their jobs. We now have the highest unemployment rate we 

have had in a quarter of a century at 9.8 percent. Most professional 

economists believe that will soon tick up to 10 percent. 

I need not tell you where we stand with respect to the debt and 

the deficit. The Federal Reserve released information yesterday 

that I believe showed that total consumer credit outstanding, which 

includes everything from credit card debt to loans for recreational 

vehicles, fell $12 billion in August, or 5.8 percent in a seasonallyadjusted annual rate—the 7th straight month of declines—longest 

stretch since 1991. 

Other Federal Reserve data has indicated that credit card lines 

have now been cut, I believe, by 25 percent in the last year. In the 

last 2 years, credit card lines have been cut by $1.25 trillion. I am 

very concerned about the impact that this has on small businesses. 

We have had testimony in this committee room, and I have had 

lots of testimony in the Fifth Congressional District of Texas which 

I have the honor of representing, that tells me that small businesses that rely upon credit cards are having trouble accessing 

credit lines to preserve and create jobs. And I think job one of this 

committee and this Congress ought to be getting this economy moving again, getting people jobs. And so I am concerned about the potential unintended consequences that either of these pieces of legislation would have. 

Now, speaking first to what we have known as the Credit Cardholders’ Bill of Rights, I would just say, and now we have a new 

piece of legislation that would essentially move up the timetable for 

this legislation. I do not believe there is a good time to enact a bad 

bill. This is a bad bill. I believe in 20 percent of it. I do believe that 

consumers have been misled on disclosures. I do believe there are 

deceptive practices out there. But unfortunately, this bill goes way 

beyond that. And I am afraid that both bills may have the potential 

to simply exacerbate a credit crunch at a time when small businesses are having trouble accessing credit, again, to create and preserve jobs. 

Ultimately, the so-called Credit Cardholders’ Bill of Rights, 

which I still view as a ‘‘credit cardholders’ bill of wrong,’’ erodes 

risk-based pricing. And it is risk-based pricing that has allowed 

millions of people to access credit who haven’t been able to access 

it before, including, again, small businesses. I believe in many respects, it represents another bit of bailout legislation, because it 

tells the people who do it right, ultimately they are going to pay 

higher fees and higher interest rates to help subsidize those who 

do it wrong. 

And I hate to say that I told you so, but when we debated this 

bill, I predicted what would happen. And indeed, we see it happening. Now, credit card companies, in anticipation of this legislation, are cutting back the lines even further. And I am afraid we 

could exacerbate the situation. 

With respect to the interchange, I am still very curious ultimately what this bill is going to do to help consumers. I am not 

unsympathetic to those who complain about it, but I am wondering, 

how is this any different from the costs that one pays for payroll, 

7 

one pays for real estate, or their advertising. It is a cost of doing 

business. If there are legal restraints of trade here, I would like to 

hear about them. If there are legitimate antitrust issues, I would 

like to hear about them. Otherwise, I see my time is up, so I will 

have to hear about them later. 

Mr. GUTIERREZ. [presiding] I gave you a little extra time there 

because we are friends. 

I yield myself the remainder of the time. On April 30th of this 

year, I stood next to Chairman Frank and other members of this 

committee after we passed the CARD Act on the House Floor and 

listened as the chairman issued a warning to the credit cardissuing banks. Chairman Frank told the banks that if they began 

to speed up rate increases or continue the practices that we had 

just prohibited, then we would move up the implementation date 

on the CARD Act. He cautioned them in no uncertain terms that 

this committee would not hesitate to stop them if they continued 

to take advantage of and abuse consumers. 

With that warning, the House passed an amendment to allow the 

banks sufficient time to implement substantial strict and admittedly complicated changes to the way they do business. But I never 

anticipated how uncomplicated it would be for the banks to continue with the very practices that we had just banned. We were 

reasonable. We were fair. The banks were not. We can’t turn back 

the clock, but we can make sure that the banks’ unreasonable practices do not continue to affect more American households. 

Today, we must begin the process of accelerating the implementation date of the Credit Cardholders’ Bill of Rights. When I got 

home that day from the signing ceremony for the legislation at the 

White House, I had a notice in the mail. It said that my bank was 

increasing my rate, decreasing my available credit, and increasing 

fees across-the-board. This was the very day President Obama 

signed the bill into law. 

What I hope to find out during the third panel of this hearing 

is why it is so easy for credit card companies to nickel and dime 

their customers as quickly as they do, while at the same time it 

takes so long to end unfair and deceptive practices that this Congress has banned? 

I listened to my colleague, Mr. Hensarling, talk about risk-based 

pricing. And I will just end with this, not to take any more time, 

what changed? What changed between the day we passed the bill 

and the day I arrived home to get my changes from my credit card 

company? I have the most secure job that exists in this economy, 

a government job. I can’t think of a more secure job. I still have— 

I have been a nine-term Member. I don’t know, did they make 

some evaluation that I had an opponent in the next primary who 

was going to knock me out? I wish they would let me know. I 

haven’t had an opponent in the last 3 elections in the Democratic 

primary, and I have a 90 percent Democratic district. 

So I tell you all that to say, I don’t understand what the new risk 

was. I have an 800-point credit score. We pay our bills on time. 

Maybe we do it too well. So I was a risk? No, what they decided 

to do was change the terms of our contract as they did to advance 

and to accelerate it. We told them, don’t do it. We gave them an 

8 

amendment. We were fair to the banks, and the banks were not 

fair to the consumers. 

We will now proceed—oh, we have Mr. Castle for 2 minutes. 

Mr. CASTLE. Thank you, Mr. Chairman. I have concerns about 

both pieces of legislation here. 

First, with respect to the CARD Act and moving up the date, let’s 

recall that date was already moved up from what the Federal Reserve was doing to what we did in legislation. The net result of 

that has been, as Mr. Hensarling has indicated to us, that we see 

fewer people getting credit at this time. We do see people getting 

cut back on the credit which exists. And we are seeing many jobs 

in the credit card industry in this country being already reduced, 

and probably many more to be reduced when all this goes into effect. So it has had some negative economic effect, particularly for 

people who can’t now get credit and cannot now go out and spend 

in our economy. We need to at least consider this. I am not suggesting we should just oppose the bill arbitrarily, but we need to 

consider all the consequences of what we are doing. 

And the same thing applies with respect to the interchange legislation. I listened to our two distinguished colleagues who spoke 

about that. And as has been indicated here, I heard no mention of 

reduction of costs as far as consumers are concerned. Apparently, 

the concern is strictly with those who are handling the cards in 

their business and what they are doing. And I would agree completely with the concepts that were put forward. We do need to 

have greater transparency, the full disclosure. This is not something that necessarily seems to affect consumers, because nobody 

has indicated they would reduce costs if indeed legislation like this 

would pass. 

But I think among the merchants and those people who are 

issuing the cards, there indeed needs to be an openness and a responsibility. So we can approach this legislation, but we need to approach it very carefully. I don’t think in this time of our economy, 

that we can afford to just pass legislation which is going to be too 

vindictive in terms of reduction of interchange fees or even elimination of the same. The same thing applies to the credit card legislation. We just need to be very cautious about the downside consequences. 

I appreciate the opportunity and I yield back, Mr. Chairman. 

Mr. GUTIERREZ. The gentleman yields back. 

Congressman Scott, you are recognized for 2 minutes. 

Mr. SCOTT. Thank you very much, Mr. Chairman. 

I want to thank the chairman for holding this important hearing 

on credit card issues. I want to focus mainly on the simmering battle between the banks and retailers regarding credit card interchange fees. I have constituents in both camps who have vigorously 

pleaded that their case is very important on this issue. 

At the center of the debate is the question of whether or not 

banks are overcharging merchants for processing credit cards and 

other products at the point of sale. The retailers claim that interchange fees have unfairly increased annually, despite better technology and more efficient processing systems. The banks claim that 

the system is more complex than the retailers describe. And they 

also are carrying the risk of data protection and credit losses. Both 

9 

industries are in the unfortunate situation of operating on thin 

margins of profits. 

So I hope this hearing will focus on what the consumer wants, 

since they are stuck in the middle. In this economy, the consumers 

want easy access to their credit. They want no hassle at points of 

sale. They want use of multiple types of payment products. And 

they most definitely want protections against fraud and low prices. 

This is a very, very important hearing this morning, Mr. Chairman. I thank you for yielding me time on this important issue. 

Mr. GUTIERREZ. Mr. Hensarling, any other time? 

Then, we will go to our second panel. 

Ms. Kathy Miller, board member of the Vermont Grocers Association, you are recognized for 5 minutes. 

STATEMENT OF KATHY MILLER, OWNER/OPERATOR, THE 

ELMORE STORE, ELMORE, VERMONT; BOARD MEMBER, 

VERMONT GROCERS’ ASSOCIATION 

Ms. MILLER. Good morning, Mr. Chairman, Congressman Welch, 

and members of the House Financial Services Committee. 

I would like to thank you for allowing me to testify today. My 

name is Kathy Miller. And I—along with my husband Warren and 

daughter Kelly—am the owner of the Elmore Store in Elmore, 

Vermont. 

I am also here today as past Chair of the Vermont Grocers Association, and on behalf of the Food Marketing Institute and National 

Grocers Association, which represents our Nation’s supermarkets 

and grocery stores. 

We appreciate you holding this hearing and for the opportunity 

to provide testimony on credit card interchange fees, also known as 

swipe fees to merchants who have to pay the fee each time a card 

is swiped. 

Thank you to my Congressman, Peter Welch, for inviting me 

here today to testify. 

It has been 3 years since I testified before the Senate Judiciary 

Committee at the invitation of Senator Leahy on the anticompetitive and anticonsumer practices of the credit card companies. 

Unfortunately, many of the same problems still exist today, and 

interchange fee costs have continued to rise at the expense of small 

businesses like ours. This is a store that we have owned and operated now for 26 years. I am a fifth generation Vermonter, with 

deep roots in Elmore. I am the ‘‘mom’’ part of the operation. My 

husband Warren, ‘‘pop,’’ is minding the store, so I can be with you 

today. Warren has recently served 2 terms in our State legislature 

in Montpelier. 

We are not only committed to our store, but to our community 

and to the State of Vermont as well. You may wonder why we do 

what we do 7 days a week, 96 hours a week, 364 days a year. To 

be honest, sometimes we ask ourselves that same question. But we 

believe that we can and do make a difference to the people in the 

community who depend upon us. My concerns as a small independent store may seem small to you, but they are a huge burden 

to us and very real. 

Congressman Welch listened to these concerns from Vermont 

storekeepers like me, and he wrote legislation to try to address sevVerDate Nov 24 2008 17:41 Apr 21, 2010 Jkt 055812 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\55812.TXT TERRIE
10 

eral of them. Warren and I commend Congressman Welch for introducing this important legislation to protect small businesses like 

our store in Vermont. And we look forward to consideration of the 

Credit Card Interchange Fees Act by this committee. 

Since I told my customers I was coming to Washington, D.C., to 

testify on this issue, I can’t even tell you how many of my customers were unaware of the hidden fees. They swipe their cards 

and think all is free because there is no charge to them at all. Obviously, we lose money on many small transactions, and too much 

on others. So we have to raise prices because we can’t absorb it all. 

In the grocery business, we compete by lowering prices, not by raising them. 

I am not a lawyer, but I know this is a huge problem that retailers across the United States, large and small, are facing. So I ask 

you to look at this matter seriously. 

I have customers who apologize to me for using their cards. I 

keep telling them, please, keep coming in the store and shopping. 

We need and appreciate your business. We have streamlined our 

business to reduce costs as best we can. Maintenance doesn’t get 

done as it should. Less money goes out in payroll. But we just can’t 

keep absorbing these fees in these tough economic times. 

If the interchange swipe fees were fair and reasonable, Warren 

and I would have more money to invest back into our business. An 

example is, we only have one phone line to save money. I can’t take 

a deli order. I can’t do grocery orders with my line tied up to swipe 

credit cards. What happens in a small country store is when a customer swipes their card for a pack of 35-cent gum, it is pre-priced, 

and it costs us 21 cents. The swipe fee on that sale costs us 21 

cents, so I just lost money. I might as well just let them take the 

gum. A 99-cent bag of chips is prepriced, again, and it costs us 74 

cents. The credit card fees are 23 cents. I can only make 2 cents 

on that sale. What is wrong with this picture? 

Congressman Welch’s bill would allow us to set reasonable minimum purchase requirements. Visa and MasterCard require us to 

accept all their cards if we take any. And they market a whole host 

of affinity cards with so-called free features. I rode in on a plane. 

I haven’t been on a plane in, I can’t tell you how long. And I have 

lost it now, but there was a napkin in front of me, ‘‘get free airplane rides.’’ Nothing is free. 

Oh, here it is. Thanks. 

So what they can’t tell you is they charge merchants higher 

interchange rates for accepting these cards. Warren and I haven’t 

gone on a vacation in 10 years; yet every day we are paying for our 

customers’ trips when we take their credit cards. 

The Visa and MasterCard contract rules are not law, so why do 

we comply with them? This hasn’t happened to us yet, but we have 

heard stories of other small businesses being threatened with excessive fines for breaking the rules, even for something as minor 

as requiring a $5 minimum to use a credit card. A $5,000 a day 

fine, which I hear is Visa and MasterCard’s going rate these days, 

would simply put us out of business. I had a store owner call me 

to say, ‘‘We are going to get fined $25,000. What should we do?’’ 

I said, ‘‘Take your signs down. We can’t set minimums.’’ 

11 

The average supermarket industry profit margin last year was 

1.43 percent. That means a profit of $1.43 on a $100 transaction. 

The interchange paid to the bank to issue that card on the same 

transaction is more than that. I would like to ask you on your next 

ride home to take a look and see how many vacant storefronts 

there are in your small downtowns. Just this last winter alone, 6 

stores closed within a 50-mile radius of us. 

Some days I feel like I should just turn my keys in, but too many 

people count on us. Elmore is a town with 850 people. We are the 

hub. We are mom and pop. We are just trying to keep our doors 

open. 

Thank you very much, and I would be pleased to answer questions. 

[The prepared statement of Ms. Miller can be found on page 215 

of the appendix.] 

Mr. GUTIERREZ. Thank you very much. 

Mr. David Evans, a lecturer at the University of Chicago Law 

School. 

Welcome. 

STATEMENT OF DAVID S. EVANS, LECTURER, UNIVERSITY OF 

CHICAGO LAW SCHOOL 

Mr. EVANS. Good morning. Thank you very much. 

I would like to thank Chairman Frank and Ranking Member 

Bachus for inviting me to testify. 

Members of the committee, my name is David S. Evans, and I 

am a lecturer at the University of Chicago Law School and also a 

visiting professor at University College London. 

Despite the law school affiliations, I am actually an economist. 

I have written on the payment industry from both the business and 

policy perspective, including ‘‘Paying with Plastic,’’ which has become the standard reference work on the industry. 

I represent solely myself at the hearing today. But in the interests of transparency, I just want to note that Visa funded my research on the payment card industry for many years. In recent 

times, though, I have been a business adviser to many of the innovative entrants into the payments business. And that includes several companies that compete with the incumbent networks and 

issuers in part by offering lower merchant fees. 

Economists have been studying the subject of interchange fees 

and related practices since the early 1980’s. There has been a flurry of research in the last decade. Much of the research is based on 

the new field of economics known as two-sided markets. Businesses 

that create value by bringing different kinds of customers together 

are said to be two-sided. So a stock exchange like NASDAQ brings 

liquidity providers and liquidity takers together, while a matchmaking service like eHarmony brings men and women together. 

Payment cards help merchants and individuals to transact with 

each other. So cardholders and merchants are in effect the two 

sides of the business. 

I have appended to my statement today an article that I co-authored with Dick Schmalensee that provides some of the key references that back up some of the things I am going to say. 

12 

So this research provides several insights. First, it turns out that 

it is very difficult to say in practice that the interchange fee 

charged by a payment network is too high, too low, or just right 

from the standpoint of public welfare. And it is even more difficult 

for a regulator to have any confidence that it could establish a better interchange fee. This argues for caution in price regulation of 

interchange fees. 

Government regulation is appropriate when it is possible to both 

identify a market failure and fix that failure without creating significant unintended consequences. That is not possible with the 

current economic state of knowledge on interchange fees. 

H.R. 2382 wisely stays away from specific price regulation, in my 

view. 

Second, and very importantly, any change that is made to the 

pricing for one side of a two-sided business will tend to have an opposite effect on the other side. Two-sided businesses recover their 

costs and they earn profits from both sides. So if a two-sided business earns less on one side, it usually has to earn more on the 

other side. Many daily newspapers, for example, are charging people more because they are making less money from advertisers. 

In evaluating the bill before you, it would be prudent in my view 

to anticipate how the changes to merchant pricing and other 

changes will ultimately affect cardholders. There probably is not a 

free lunch here. 

Third, the customers of two-sided businesses interact a lot, and 

the platform makes money by promoting valuable interactions. But 

the platform also has an interest in policing bad behavior. So eBay, 

for example, is a two-sided business. It tries to get buyers and sellers to swap a lot of stuff. But it also has rules that buyers and sellers have to follow; eBay protects buyers by kicking sellers that repeatedly fail to meet their end of the bargain off of eBay. 

I mention this in the context of H.R. 2382 because many of the 

policies that the bill seeks to restrict at least arguably benefit one 

side of the market, namely individuals who carry cards and want 

to use them freely and easily. A card brand can provide benefits 

to individuals by assuring them that their card will be accepted everywhere and that these individuals won’t be surcharged. 

One could also argue that the network policies that are the subject of H.R. 2382 are anticompetitive or contrary to the public interest, but I believe it would be prudent to consider the procompetitive explanations as well as any anticompetitive ones that you 

want to think about. 

Most likely, again, there is no free lunch here either. Prohibiting 

the networks from imposing various restrictions will likely impose 

some collateral costs on end consumers. 

And if I have one more minute to continue, there are many elements to this bill, and I have not done a careful study of it. I would 

like to suggest, however, that payment cards is one of the most 

complex industries that economists study. There are many moving 

parts and interdependency between merchants, cardholders, processors, acquirers, networks, and other players. And as a result, 

there is a greater risk in this industry than in many others for government intervention to have unintended consequences. 

13 

Finally, I am not aware as an economist of any systematic evidence that would support the position that the payment card network practices targeted by H.R. 2382 cause public harm overall 

once we take into account the interests of consumers, or that the 

types of restrictions on payment card networks suggested in the 

bill would ultimately enure to the public. 

I also don’t believe that any of the targeted practices are in fact 

anticompetitive under U.S. law. 

Thank you, again, for the opportunity to appear before this committee. And of course, I would be very happy to respond to your 

questions. Thank you. 

[The prepared statement of Mr. Evans can be found on page 191 

of the appendix.] 

Mr. GUTIERREZ. Thank you. 

Mr. Mark Caverly, executive vice president of the Local Government Federal Credit Union, on behalf of CUNA and the Electronic 

Payments Coalition, you are welcome. You have 5 minutes. 

Mr. CAVERLY. Thank you. Good morning. 

Mr. GUTIERREZ. Good morning, sir. 

STATEMENT OF MARK CAVERLY, EXECUTIVE VICE PRESIDENT, LOCAL GOVERNMENT FEDERAL CREDIT UNION, ON 

BEHALF OF THE CREDIT UNION NATIONAL ASSOCIATION 

(CUNA) AND THE ELECTRONIC PAYMENTS COALITION (EPC) 

Mr. CAVERLY. Mr. Chairman, members of the committee, thank 

you for the opportunity to testify today in opposition to H.R. 2382, 

the Credit Union Interchange Fees Act of 2009. 

My name is Mark Caverly, and I am speaking today on behalf 

of the Credit Union National Association and the Electronic Payments Coalition. My credit union is a member of CUNA, the largest 

advocacy organization for America’s 92 million credit union members. 

And CUNA is a member of the EPC. The EPC includes credit 

unions, banks, and payment card networks that move electronic 

payments quickly and securely between millions of merchants and 

millions of consumers across the globe. The goal of the EPC, and 

the reason I am before you today, is to speak for the consumer and 

to protect the value, innovation, convenience, and competition in today’s electronic payments system. 

I serve as executive vice president for the Local Government Federal Credit Union in Raleigh, North Carolina. We serve the financial needs of local government employees, elected officials, volunteers, and their families. My credit union has 178,000 members, 

and we are the issuers of 173,000 debit cards and 16,000 credit 

cards for our membership. 

To begin, allow me to cover the who, what, and why of interchange. Who is responsible for interchange? Interchange is the responsibility of the merchant and the merchant’s bank. Card issuers 

such as my credit union who assume the risks of fraud, nonpayment, and the administration of the card program receive interchange. 

What is interchange? First of all, interchange is not a fee on consumers. To the contrary, interchange represents the merchants assuming their fair share of the financial responsibility for the card 

14 

payment system. Merchants receive many benefits and tremendous 

value from accepting cards. The merchant discount fee, which includes the interchange amount, is the merchants’ cost of doing 

business for accepting this valuable form of payment. The credit 

union’s cost of doing business includes funding costs, credit losses, 

billing and collections, customer service, data processing, and compliance. The value merchants receive when we administer these 

programs and assume significant risks for their benefit far exceeds 

the interchange fee. 

Why is interchange important to credit union members? As an 

issuer, my credit union receives interchange when our members 

use their debit and credit cards. Interchange helps us support the 

card programs for the benefit of our members or the consumers. In 

fact, interchange for my credit union’s card program represents 

14.4 percent of my credit union’s total income year-to-date. 

Our concerns regarding this legislation come down to a simple 

point: If my credit union’s interchange decreases, consumer costs 

increase. Reducing the merchants’ interchange responsibility would 

result in costs shifting from merchants to consumers, and increased 

fees for consumers to obtain debit and credit cards. 

While the bill simply references credit card interchange fees in 

its title, the bill would also address debit card interchange, and 

would create significant changes to the foundation of the electronic 

payments system. The bill reduces consumer choice and increases 

consumer costs and confusion in many ways. 

But allow me to share a few examples with you. First, the merchants are seeking to abolish the honor-all-cards rule or practice 

that merchants must follow. As a consumer, you may choose to 

carry only one credit card and one debit card with you. Now, imagine your favorite chain restaurant has either decided not to honor 

cards issued by credit unions or has entered into an agreement 

with a large financial institution. The restaurant tells you that 

they won’t accept the card of your choice or will only offer more favorable prices to the cards issued by the large financial institution. 

Consumers want honor-all-cards because it gives them the choice 

as to what card to carry. 

Second, gas stations are seeking to abolish the current system regarding charge-backs. Essentially, it would absolve them from the 

financial responsibility when they allow card transactions to be 

processed in violation of the preauthorized amount for the sale. If 

this were enacted, my credit union will assume even more of the 

risk of fraud and an increase in the risk of nonpayment. And as 

a nonprofit financial cooperative, when our costs increase, so do the 

costs to our consumer members. 

Finally, by not mentioning data security, this bill allows merchants to continue to walk away from their data security responsibilities. Cleaning up after merchant data security breaches is a 

significant cost that we as credit unions continue to pick up. 

In conclusion, credit unions oppose H.R. 2382 and other legislation designed to decrease the merchants’ responsibility for the 

value they receive from the card payment system. If merchants are 

successful in reducing their fair share of responsibility for the card 

payment system, the consumers will pick up the difference. 

15 

Thank you for giving credit unions and their consumer members 

an opportunity to share our position on interchange and the card 

payment system. 

[The prepared statement of Mr. Caverly can be found on page 

110 of the appendix.] 

Mr. GUTIERREZ. Next, we have Mr. Ed Mierzwinski, consumer 

program director, U.S. PIRG. 

Please, you are recognized for 5 minutes. 

STATEMENT OF EDMUND MIERZWINSKI, CONSUMER 

PROGRAM DIRECTOR, U.S. PIRG 

Mr. MIERZWINSKI. Thank you, Chairman Gutierrez, Mr. Hensarling, and members of the committee. 

I am Ed Mierzwinski, of the U.S. Public Interest Research 

Group. 

This is a very fascinating consumer issue. And we have supported the Welch-Shuster bill, H.R. 2382, to give merchants a fairer shake against the credit card companies and the credit card networks. We believe that the proposed bill addresses a number of 

flaws and problems in the system. 

Let me describe just briefly how it works. First of all, approximately 2 percent of every dollar that you spend goes to a fee called 

the merchant discount, but the bulk of it is this interchange part 

that is essentially nonnegotiable. Recently, debit and credit combined passed all cash transactions. 

If you presume for the purpose of discussion that 50 percent of 

transactions cost the merchant 2 percent more than its other transactions, then he or she has to raise his or her costs to all consumers, including those who don’t pay with credit or debit, by 1 

percent; 50 percent raises your costs 2 percent, so 100 percent pay 

1 percent more. So all consumers pay more at the store and more 

at the pump because of interchange that is nonnegotiable, nontransparent to the merchant. 

Second, it is a really kooky system in a lot of ways. One of the 

ways is that merchants are forced under this honor-all-cards provision to accept a Visa card that looks exactly like another Visa card, 

except that it costs the merchant 3 percent or more instead of 1 

or 2 percent. Why does this Visa card cost more than that Visa 

card? Well, it is because of rewards programs. Interchange doesn’t 

just pay for fraud. Interchange doesn’t just pay for the system. It 

pays for solicitations, the 5 billion trees that cry every year because 

of all the—well, maybe it is not 5 billion trees, but it is 5 billion 

letters from credit card companies, the solicitations, and the rewards. 

So who benefits from rewards? I submit that only convenience 

credit card users benefit primarily from rewards. The purpose of 

rewards debit is to drive people to debit transactions so that merchants can earn more money. But revolving credit card users don’t 

make money on rewards. If it costs you 25 percent APR to carry 

a balance and you are getting a 1 percent reward, you are not benefiting from rewards. So it is not all credit card customers; it is 

only some. And it is not all consumers; it is only those who use 

cards. 

16 

There are other problems with the system. Merchants are prevented by these thousands of pages of contractual gibberish from 

providing their customers with a choice of a lower cost discount for 

cash. They may not be prohibited explicitly, but the merchants tell 

me that it is a serious problem that the banks force on them. They 

make it very difficult for them to offer their customers discounts 

for cash. 

So I think there are some serious problems in the interchange 

system that will be addressed by the Welch-Shuster bill and that 

will benefit all consumers. 

Again, I am concerned with all consumers. I am not simply concerned with credit card customers. Today we have an increase in 

the use of debit, but not all of that debit is associated with bank 

cards. 

I want to make one point unrelated to the bill. I would encourage 

the committee to also look at increasing the consumer protections 

that apply to all prepaid cards. As we use more payroll cards, as 

we use more prepaid debit cards not associated with bank accounts, 

as lower-middle-income working families accept their social welfare 

benefits through EBT, they are all paying interchange, but the 

merchants—I am sorry, the banks and the interchange networks 

are not providing those consumers with the same consumer protections as consumers have with the gold standard of a credit card or 

the less than gold standard of Regulation E, which provides consumers of bank-issued debit cards with consumer protections. We 

need a whole revamp of the payment system to protect consumers. 

In the couple of seconds that I have left, I also want to strongly 

support the bill to accelerate enactment of the final provisions of 

the Credit Cardholders’ Bill of Rights. The banks have been behaving badly. 

And then I want to say, how did we get into this mess in the first 

place with the credit card companies? Well, the reason is we didn’t 

have a regulator whose job was to protect consumers. And that is 

why this committee needs to pass a strong consumer financial protection act that restores Federal law as a floor, not a ceiling. Keeping preemption is a big mistake. I urge you to stick with the bill 

and not support any amendments to add preemption to the bill. 

Thank you. 

[The prepared statement of Mr. Mierzwinski can be found on 

page 200 of the appendix.] 

Mr. GUTIERREZ. The Honorable Ann D. Duplessis, Liberty Bank 

senior vice president of retail banking and marketing and sales, on 

behalf of the Independent Community Bankers of America. 

You are recognized for 5 minutes. 

STATEMENT OF THE HONORABLE ANN D. DUPLESSIS, SENIOR 

VICE PRESIDENT, LIBERTY BANK AND TRUST, NEW ORLEANS, LOUISIANA; STATE SENATOR, DISTRICT 2, LOUISIANA 

STATE SENATE, ON BEHALF OF THE INDEPENDENT COMMUNITY BANKERS OF AMERICA (ICBA) 

Ms. DUPLESSIS. Thank you, Mr. Chairman, and members of the 

committee. Again, my name is Ann Duplessis, and I am a senior 

vice president of retail banking with Liberty Bank and Trust, a 

$400 million community bank headquartered in New Orleans. 

17 

I am also a proud Louisiana State Senator, representing areas in 

New Orleans, in and around New Orleans’ Lower Ninth Ward, 

eastern New Orleans. I am also the chairman of the Commerce, 

Consumer Protection, and International Affairs Committee, and am 

pleased to be here today on behalf of the Independent Community 

Bankers of America to discuss this very important issue of interchange. 

I also asked that you be given a separate ICBA statement on the 

credit card bill, and hopefully that can be included in the records. 

Just a little bit about Liberty Bank. We started in a trailer in 

New Orleans about 37 years ago, and we have grown to more than 

13 locations across 5 States. We are one of the five largest AfricanAmerican-owned financial institutions in the country. In addition 

to my current role at Liberty Bank, I was also a small business 

owner, operating a hair salon and day spa and a business consulting practice. 

On behalf of ICBA’s nearly 5,000 member banks, I want to thank 

you for the opportunity to testify on the important role credit and 

debit card interchange fees play in supporting community banks 

and our customers. The payment card system provides tremendous 

benefits to consumers and merchants, but it is not cost-free. Liberty Bank is both an acquiring bank for merchants and a card 

issuer. Our customers are both individual consumers and local 

merchants who have decided, after shopping around, that we can 

provide them with the best acquiring services. 

Even a relatively small acquirer like Liberty Bank can provide 

merchants full access to the global electronic payment systems. As 

a community banker serving local merchants, and as a former 

small business owner, I strongly believe the key points in this entire debate over interchange fees is being masked behind misleading rhetoric from the large merchants that stand to benefit by 

congressional action. 

The most important concern for any small retailer, their banker, 

and ultimately the customers who pay for the goods and services 

is merely the cost of handling money. Money is given and received 

in many forms, all of which have costs. Cash and checks have given 

way to plastic, not only due to consumer preference but also because accepting electronic payments is a more efficient and less 

costly way for merchants to provide these services. I know because 

I have seen this firsthand as a business owner and as a banker 

who every day works to improve the bottom line of my local retailers. 

Credit cards are the only loan or credit product that generally allows the consumer to control how much he or she will owe and 

whether he or she will pay a finance charge or just be a convenience user. Our credit card programs are not huge profit centers, 

but they have real value and give me the basic ability to offer products to consumers and merchants coupled with superior customer 

service that community bankers can provide. 

Distorting the network rules in favor of large retailers and away 

from consumers would jeopardize the ability of community banks 

to continue to offer these services. If more small banks stop offering 

interchange-supported products and services, it is likely that the 

18 

industry would consolidate into just a few very large issuers and 

acquirers. 

In the Credit Card Interchange Fee Act, large merchants simply 

want Congress to intervene so they can pay less and follow fewer 

rules for the benefits they receive from the card accepters. 

This bill would also create a burden for consumers by reducing 

their flexibility. Today, Liberty Bank cardholders know that their 

payment card will be honored at any merchant accepting electronic 

payments. This bill would allow a merchant to now dictate to consumers the terms of use and which cards that consumer must 

carry. If a Liberty Bank card is no longer accepted universally, my 

customers may be forced to apply for multiple cards that they don’t 

want or need, thus decreasing credit scores and making it more difficult to get credit. It would create an incredibly inefficient and uncertain shopping experience if customers no longer control their 

own payment choices. 

Mr. GUTIERREZ. The time of the gentlelady has expired. 

Ms. DUPLESSIS. Thank you. 

[The prepared statement of Ms. Duplessis can be found on page 

180 of the appendix.] 

Mr. GUTIERREZ. You are very welcome. 

And now, we have Mr. Mallory Duncan, senior vice president and 

general counsel, National Retail Federation, on behalf of the Merchants Payments Coalition. 

You are recognized for 5 minutes, sir. 

STATEMENT OF MALLORY DUNCAN, SENIOR VICE PRESIDENT 

AND GENERAL COUNSEL, NATIONAL RETAIL FEDERATION, 

ON BEHALF OF THE MERCHANTS PAYMENTS COALITION 

Mr. DUNCAN. Thank you, Mr. Chairman. I want to thank the 

ranking member and members of the committee. I would like to 

thank you and the members of the committee for allowing me to 

appear. 

Let me state the obvious. We are retailers. No one believes in 

free markets more than we do. We know that free markets work 

when there is transparency, few fetters on competition, and ideally, 

an absence of concentrated market power. That is the world we 

face with most of our suppliers, and it is what we as an industry 

deliver to our customers. 

Retail competition is fierce. It is reflected in very thin profit margins, typically around 2 percent. With margins that narrow, when 

costs go up, so do prices. When costs go down, competition pushes 

prices down as well. You can buy great electronics for a fraction of 

the price you would have paid a few years ago. That is the beauty 

of the competitive market. 

We want to provide value to our customers, and that is why we 

are so concerned by what the credit card companies are doing to 

us and to the American consumer; they are doing it with hidden 

fees, arcane rules, and overwhelming market power. 

The credit card market is broken and needs to be fixed. The card 

industry has told you that the market is functioning fine, that it 

is so complicated and two-sided that you had best just ignore it. 

That sounds like what they said about subprime loans. But in 

19 

truth, it is a very simple scheme; they don’t want oversight because 

what they have is a privately regulated cartel. 

The banks and the members of Visa and MasterCard will tell you 

the market is competitive. As appendix A at the back of my testimony indicates, in part that is true, they do compete for customers, 

but on the merchant side, the opposite is true. Since its inception 

Visa and its big banks have gotten together and decided how much 

they are going to charge to process payments. Once the decision is 

blessed, all issuing banks charge the same fee regardless of the 

bank’s name that is on the card. These otherwise competing banks 

huddle under the Visa and MasterCard rules as one, and insist 

that merchants accept their cards, fees, and rules on a take-it-orleave-it basis, with no opportunity to negotiate. No merchant can 

stand up to that. 

Now, both firms have changed recently their structures, but the 

net result is the same. We have here cartels operating in violation 

of the antitrust laws. But there is more. They also fix the rules, 

rules designed to support the cartel and to hide its operation from 

consumers who ultimately pay most of these fees. It is this lack of 

transparency and these confining rules that the Welch-Shuster bill 

addresses. Let me give you a couple of examples. 

The card companies have what they call a nondiscrimination 

rule. It prohibits merchants from giving customers a discount if the 

customer uses the card with lower fees. This is a remarkably anticompetitive rule. It is like Coca-Cola telling grocery stores that 

they could be fined or their right to sell Coke products revoked if 

they charge people less for Pepsi than for Coke. Its effect, of course, 

is to discourage the market from moving towards cheaper forms of 

payment. Welch-Shuster would open the market up to competition. 

Or take pricing generally. The card companies’ rules say that the 

regular price we offer the public must be the credit card price, but 

a 2 percent profit margin isn’t large enough to absorb a 2 percent 

interchange fee. So a shopping cart of back-to-school clothes that 

we would willingly sell for $99 cash has to be priced somewhere 

around $101 because of their rules. But look at what is happening, 

$101 becomes the regular price for $99 worth of cash merchandise. 

And regardless of whether one uses cash, check, or food stamps, we 

all end up paying the credit card company price. In effect, interchange acts as a privately imposed hidden sales tax on U.S. commerce. 

As to transparency, most consumers don’t realize that rewards 

cards cost far more to use than does a regular card. Do consumers 

know that swiping rewards cards drives up the price of everything 

they buy even higher? 

Now, if I may, I would like to raise one issue that NRF is very 

concerned about that does not apply to the Welch bill, and that is 

debit cards. Cash and check pass at par, that is face value. The 

Federal Reserve says that in return for a $100 check, a bank must 

give you $100 in exchange, yet $100 on a debit card is subject to 

interchange fees. But what is a debit card other than a plastic 

check? There is no loan; they are even called ‘‘check cards.’’ It is 

time for Congress to demand that Fed do for plastic checks what 

they have long insisted on for paper checks. Otherwise, again, we 

will end up eating up the value. 

20 

In conclusion, you should know that the bulk of interchange goes 

to a handful of banks. There are roughly 10,000 banks in each of 

the card networks, yet more than 80 percent of the interchange 

goes to just 10 big banks. But they don’t show up here to defend 

it. Apparently they are not only ‘‘too-big-to-fail,’’ they are ‘‘too-bigto care.’’ 

[The prepared statement of Mr. Duncan can be found on page 

144 of the appendix.] 

Mr. GUTIERREZ. We are now going to go to the question portion 

of this hearing. 

This is quite an educational process. And I think that of everyone 

who has testified, I want to figure out a way that we help out Mrs. 

Miller from Vermont and her store and her family business. She 

seems to have made—not that the rest of you didn’t make compelling arguments, but the most compekking argument. 

Is there anything else you would like to add, something that you 

didn’t have time for in your 5 minutes? 

Ms. MILLER. Not really, just maybe a few things. I know they 

keep talking about cash discounts and credit and that kind of stuff. 

Maybe in a bigger store where you scan, that wouldn’t be an issue. 

Well, mom and pop stores, as long as I own the store—I have been 

there for 26 years—I never going to have a scanning system. It is 

all manual. That would be an absolute nightmare as far as the 

storekeeper and employees. I was given a copy of what the rules 

were as far as discount and point of sale, and I don’t understand 

them. I would be more than glad to share it with you. It talks 

about setting a standard price, and it is just kind of gibberish to 

me. 

Mr. GUTIERREZ. We want to see what we can do to make sure 

we keep businesses such as yours— 

Ms. MILLER. Keep it simple. 

Mr. GUTIERREZ. Right, keep it simple and keep it understandable 

and keep it in business. 

Ms. MILLER. And the big thing with Congressman Welch’s bill 

is—I haven’t been out of Vermont very often, but a lot of our stores 

do have minimum setup, $5, $10, whatever. And I guess that is 

what I am looking for is the flexibility to be able to do that. I am 

not discriminating against a sale, I am not saying you can use this 

card, you can use that card, but that definitely would help us. 

My examples with the potato chips and the gum, that is real. It 

happens every day of the week. 

Mr. GUTIERREZ. I will never walk into a mom and pop grocery 

store in my neighborhood— 

Ms. MILLER. But we want them to walk into our store. Don’t 

drive by and get your big pack of gum at Wal-Mart. 

Mr. GUTIERREZ. I will go hungry before I use a credit card after 

your example today. I mean that sincerely. It is outrageous what 

happens. 

Ms. MILLER. I am on Route 12, and we are 23 miles from Montpelier, our State capital, and we are near Stowe, the ski capital of 

the East. So people are on their bicycles, and they have a piece of 

plastic in their back pocket. And I want them to come into my 

store, so that would definitely help me. They might walk out with 

21 

an Elmore Store T-shirt on, and they won’t have to carry it, they 

can do that. 

Mr. GUTIERREZ. I get it. 

Ms. MILLER. Other things I know, like when I testified in front 

of Senator Leahy’s committee, they talk about litigation. And I am 

not part of the litigation, I don’t understand the whole situation, 

but that has been going on for years. Small retailers can’t wait 

years and years and years for more change. 

And they talk about the monthly fees. I don’t know what my 

monthly fees are until I get my bill. Number one, I still get one in 

the mail because I am an old-fashioned girl. I like paper and pencil, and I use my computer because my bookkeeper makes me do 

it, but I still do all my own stuff. But I don’t know until the end 

of the month what is getting taken out of my checking account. 

Mr. GUTIERREZ. So there is the end of the month, and there is 

this— 

Ms. MILLER. It is like, whoa. July and August is a busy time, and 

$600 a month is a lot out of a small store. So you have to have 

that in your checkbook, and it is just like—it is huge, and you don’t 

know what it is, but you have to be prepared. 

Mr. GUTIERREZ. What we will probably do is, we will probably be 

in touch with you just to get more examples from you and others 

like you. 

Ms. MILLER. And one more small example, and I don’t mean to 

interrupt you. 

Mr. GUTIERREZ. Absolutely. 

Ms. MILLER. Two months ago, all of a sudden, I got a three-page letter saying I had to either say yea or nay to an $8.95 a month 

fee for breach of security insurance. And I figured that was covered 

by my home or my store insurance policy. So I called my local insurance company in Montpelier and they were like, gee, that is a 

really good question. It took her probably a week to get back to me 

and she said, you are not covered. So there is another $8.95 a 

month. So you never know what is going to come from where. 

Mr. GUTIERREZ. Well, what we will do is we will make sure that 

we have a conversation. We have your testimony, but we will have 

a further conversation. I know Congressman Welch will work on 

making sure that happens because there is a lot of eye opening information here at this hearing. 

I know that in my neighborhood, I guess you pay one price for 

gasoline if it is cash and another price if it is a credit card, except 

it doesn’t happen in every neighborhood in Chicago. It is only in 

certain neighborhoods in Chicago this happens, where there is a 

duality of prices for gasoline. 

And the other thing, the big retailers. I went to a big retailer, 

and they have a sign that says, ‘‘Use your debit card, we will give 

you 3 percent back.’’ Guess what I did? I used my debit card because I have cash in my debit account, and they gave me 3 percent 

back and I was happy to get it. You can’t do that. 

Ms. MILLER. No. 

Mr. GUTIERREZ. It is unfair. 

Ms. MILLER. And when somebody walks in my store, I don’t want 

to treat people differently. Everybody should be on a level playing 

field and be treated the same. 

22 

Mr. GUTIERREZ. We are going to try to do that, Ms. Miller. That 

is going to be our intent. 

Ms. MILLER. Thank you, I appreciate your time. 

Mr. GUTIERREZ. You have Congressman Welch on the committee. 

We will be talking to him some more. 

Thank you so much. 

Mr. GUTIERREZ. Congressman Hensarling, you are recognized for 

5 minutes. 

Mr. HENSARLING. Before I get into my line of questioning, I have 

a statement here from the Financial Services Roundtable in opposition to both bills. I would ask unanimous consent that it be entered 

into the record. 

Mr. GUTIERREZ. Hearing no objection, it is so ordered. 

Mr. HENSARLING. Thank you, Mr. Chairman. 

Indeed, Ms. Miller, you give very compelling testimony. I have 

heard from a number of very small retailers in my district in 

Texas, but I am still trying to figure out exactly who is ‘‘David’’ and 

who is ‘‘Goliath’’ in trying to figure out the public relations battle. 

Is it a battle between your little grocery store versus Visa? Or is 

this Wal-Mart versus Liberty Bank, a community bank that I assume serves a lot of low-income and minority people in the Ninth 

Ward of New Orleans. I am not so certain that it is easy to discern 

who is ‘‘David’’ and who is ‘‘Goliath’’ here, nor do I necessarily 

think that is a good way to legislate. 

I guess the question I have here—and Mr. Duncan, I don’t have 

all of your written testimony here in front of me, but did I hear 

you make a declarative statement that the payment systems of 

Visa and MasterCard violate our antitrust laws? 

Mr. DUNCAN. Yes, you did. 

Mr. HENSARLING. If so, why are we here? Why haven’t the courts 

already acted? 

Mr. DUNCAN. Well, the courts actually, Congressman, have acted 

in some instances. The Justice Department brought a case against 

Visa and MasterCard for another set of rules, which was the exclusionary rules. 

Mr. HENSARLING. There again, we have antitrust laws on the 

books. If these companies have violated them, I would assume that 

the practices of which you complain about today, would have already been fined and received cease and desist orders. So are you 

saying in some cases yes, in some cases no? 

Mr. DUNCAN. I am saying litigation takes years, antitrust litigation takes years, and, unfortunately, antitrust legislation is backward looking. So a decision the court makes today covers what happened— 

Mr. HENSARLING. Well, I am anxious to see the rulings of the 

courts, but my guess is that reasonable minds may end up disagreeing. 

Mr. Duncan, my guess is there are very practical impediments, 

barriers to entry, in this market, but are there legal barriers to 

entry for people setting up a new payment card system? Listen, I 

know it is a capital-intensive business, but so is the airline business. New airlines have been created in the last few years. So why 

don’t you all get together and create your own credit card network? 

23 

Mr. DUNCAN. Well, there are, as you have mentioned, practical 

barriers to entry in this market. The two cards, Visa and 

MasterCard, have 85 percent of the market. 

Mr. HENSARLING. I understand the practical barriers. Are there 

legal barriers? If so, I would like to work on them; I believe in more 

competition as opposed to less. Are there legal barriers of entry 

that you would like to make this committee aware of? 

Mr. DUNCAN. I am not sure that there are legal barriers to entry 

that are necessarily within the jurisdiction of this committee. 

Mr. HENSARLING. Well, let me ask you this: I assume that your 

members believe they do receive some value in these payment systems. For example, the ease of the payment, you don’t have to 

worry about the bounced checks. I assume you have a fairly sophisticated antifraud network. 

What we are discussing now is the price that I think I heard either you or Ms. Miller describe as either abusive or unfair. So you 

do acknowledge you get some benefits, we are now debating whether or not the price is fair. Is that— 

Mr. DUNCAN. There are benefits to cards in some instances, yes. 

Mr. HENSARLING. And so, again, the complaint here is the price. 

But how does this differ from if your rent goes up, your utilities 

go up, your payroll goes up, your insurance premiums go up? All 

of that comes into the base price of your item. Sooner or later, it 

gets pushed off onto the consumer and you ostensibly are trying to 

make a profit. So how is interchange somewhat unique from every 

other cost that your membership deals with? 

Mr. DUNCAN. Actually, that goes to the very first point you 

raised as to who is the ‘‘David’’ and who is the ‘‘Goliath’’ here. The 

difference is, it is not a question between the Elmore Store and a 

large bank; the debate is between open competition and privately 

regulated markets. Visa and MasterCard— 

Mr. HENSARLING. Well, it sounds like it could be open competition if we don’t have legal barriers to entry. 

I see that my time is starting to wind down. I am also curious 

about—I guess I will ask this as a rhetorical question—the ability 

of retailers to deal in cash only. I can tell you right now, I just had 

a son turn 6 years old, and his birthday cake was purchased from 

Casa Linda Bakery in Dallas, Texas. They only take cash, and they 

have been successful for decades and decades. 

Mr. DUNCAN. I guess the last point would be that all these other 

items you mentioned—the rent, the utilities—we can either negotiate or control them. We cannot control interchange. 

Mr. GUTIERREZ. Ms. Miller, I see you are over there trying to get 

in a word edgewise. I ask unanimous consent that Mrs. Miller has 

30 seconds. 

Ms. MILLER. Thank you. 

Do we have any control? No. When I take somebody’s card, I 

have that equipment in front of me, and I swipe the card. It is 

through my local bank—I choose to use my local bank because of 

the technical support. Does it cost me a little bit more? Yes. But 

I am in a rural area. If I have an issue, I can make a phone call 

24–7. I have a real person who can help me out. 

24 

As far as your payroll, payroll is something you can control. That 

is why it is Cathy and Warren at the Elmore Store. I have two 

part-time employees and I employ three high school students. 

Rent, utilities. You bring in the natural cooler systems. We were 

actually the first one— 

Mr. GUTIERREZ. Your 30 seconds is up, Ms. Miller. I am sorry. 

Senator Duplessis? 

Ms. DUPLESSIS. Thank you, Mr. Chairman. 

I would like to just make a few comments to clarify some of the 

issues that Ms. Miller suggested. 

First, I would like to also invite her to be a customer of Liberty 

Bank, because obviously, the bank that you are dealing with is not 

giving you the best deal. 

At the end of the day, every merchant has a depository account. 

That is where the money flows. And so the relationship that a merchant has with its banker is what causes the negotiation. Every 

day, when I look at my merchant accounts, we look at total relationships and we negotiate their fees. 

Mr. GUTIERREZ. Thank you. 

Congresswoman Waters, you are recognized for 5 minutes. 

Ms. WATERS. Thank you very much. Let me welcome all of our 

panelists here today, and thank you for coming. 

You are here at the Congress of the United States at a very interesting time. 

What I am gleaning from the testimony is that two of the organizations that I have fought very hard for, the credit unions and minority banks, are kind of caught in an unusual and difficult situation. First of all, many of us are just at this time very unhappy 

with the major banks in this country. We have bailed them out. 

They have tightened the credit on everybody, individual consumers. 

And I am particularly concerned about these exchange fees or 

interchange fee—what do you call them? Interchange. I remember 

testimony that came from one of the panelists here—Mr. Mallory 

Duncan, weren’t you before the Judiciary Committee? 

Mr. DUNCAN. I was. 

Ms. WATERS. And at that time, I thought there should be some 

real concerns about antitrust and collusion based on your testimony. I don’t know what is happening over in that committee, but 

I am going to direct my staff to pay attention to that aspect of this. 

Let me just say particularly to our credit unions and minority 

bank panelists, there has to be some changes made in the way that 

these fees operate now. I understand the problems that you are 

presenting to us today, but the overall problems and the abuses 

just trump the problems that the minority banks and the other 

companies are having. 

So what I am going to do is work with the authors of this legislation to see if I can address some of your concerns as we make the 

changes that need to be made, but it cannot stay the same. 

I just don’t understand, merchants are forbidden to impose a surcharge for the use of payment, credit or debit cards, under the no 

surcharge rule. Merchants are required to take all credit cards 

bearing the card association brand on our all cards rule. They are 

required to accept these cards at all outlets. Merchants are prohibited from offering discounts to particular types of cards. The nonVerDate Nov 24 2008 17:41 Apr 21, 2010 Jkt 055812 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 K:\DOCS\55812.TXT TERRIE
25 

differentiation rule. Who made these rules? Where did these rules 

come from? 

Mr. MILLER. Isn’t it Visa and MasterCard? 

Ms. DUPLESSIS. No. May I make a response to that? 

Ms. WATERS. Sure. Yes, please. 

Ms. DUPLESSIS. I think some of the issues that you brought up 

are inaccurate. First, that there is no charge or difference that Visa 

or MasterCard requires for cash or credit. The second thing is, 

imagine you are shopping or you are going to make a purchase. 

This bill would allow credit merchants to change at their will who 

and what type of credit card they will accept. So today, you walk 

in Target or Wal-Mart or Saks, and you have a credit card that you 

typically use. Tomorrow, Saks may say they don’t accept that. 

Ms. WATERS. But excuse me, if I may. That has always been the 

way that credit cards worked in this country. I have credit cards 

that cannot be used. It didn’t just start yesterday. And it still goes 

on all over the country. So what is different? 

Ms. DUPLESSIS. It is the networks. Your merchant can decide 

whether it will accept Visa, MasterCard, Discover, American Express, or any of the other credit card companies. They can decide 

which one of those companies they will accept. But if they decide 

to accept the Visa, MasterCard, Discover, American Express, then 

they have to accept all cards using that logo, that network. The difference here is, they can say I accept Visa, MasterCard, but I only 

accept this type of card that Visa, MasterCard uses. 

Ms. WATERS. But this is a rule that was basically developed by 

the big credit card people. 

Ms. DUPLESSIS. No, this is what his bill would do to us. It would 

change the ability for that consumer—if I have a Visa card and I 

decide—and ‘‘X’’ merchant accepts Visa, then I can use any type of 

Visa card that I have, whether it is a rewards card, an affinity 

card, or any type of card at that store to make a purchase. If this 

legislation passes, that store may say, we accept Visa or 

MasterCard, but not that particular issuer. That is the dangerous 

part. And that is the part that would create a very uncertain, very 

inconsistent— 

Mr. GUTIERREZ. Your time has expired. 

I ask unanimous consent that the National Association of Convenience Stores and the Society of Independent Gasoline Marketers 

of America; the Electronic Transactions Association; the Independent Community Bankers of America; the National Black 

Chamber of Commerce; the Blackhawk Network; the Honorable 

Betsy Markey; and the American Bankers Association all have 

unanimous consent for their statements to be included in the 

record. 

Hearing no objection, it is so ordered. 

And next we have the ranking member, Mr. Bachus. You are recognized for 5 minutes, sir. 

Mr. BACHUS. This interchange fee is a serious issue. I think most 

of the members are trying to study it and make a judgment. But 

my remarks are going to be on something else. 

Mr. Mierzwinski, you made the remark—and I think it was in 

connection with implementation of the new credit card bill—that 

you believe the banks are behaving badly? 

26 

Mr. MIERZWINSKI. That is correct, sir. 

Mr. BACHUS. I know Congresswoman Waters says that she and 

her colleagues are very upset with most of the big banks. I think 

you would admit that is a broad generalization of all banks. 

Mr. MIERZWINSKI. Well, I think that in the credit card market, 

as you know, Mr. Bachus, the credit card market is extremely concentrated, there are just a few banks. According to studies that will 

be discussed in the second panel by some of my consumer colleagues, all of the big banks are either raising interest rates dramatically, raising minimum payments, jumping on consumers with 

massive changes to their cards. And so if the credit unions aren’t 

doing it, that is great, but they have such a small part of the market. 

Mr. BACHUS. Well, let me say this; we passed credit card legislation that increased their cost—I think we all would accept that— 

and it exposed them to risks that they didn’t have before. And I 

think at the time we debated it, there were pretty broad statements by both the industry and by Members of Congress that this 

was going to result in—that they were going to have to raise the 

rates in many cases, that they were going to have to restrict credit 

in many cases. In fact, I read studies at the time that said they 

may have as many as 25 percent of the folks who were extended 

credit probably may be denied credit cards going forward depending on how it was implemented. 

So I don’t think it should come as a shock to any of us, including 

consumer groups, that they are raising rates and they are limiting 

their exposure. In fact, I would submit, if they made any mistakes—and they did over the past several years—it was overextension of credit, giving credit cards to people who probably should not 

have had them, giving them too much credit. And they have taken 

tremendous losses on it. And their costs are going up. They don’t 

escape a bad economy. 

I am just saying that I think of everything we do here, that we 

don’t approach this from the banks are behaving badly. I understand your frustration, but I can say that it could have been predicted that people were going to be getting notices that their rates 

were going up because—yes, and some of the changes I think were 

good, but it was also very predictable that it was going to cost more 

because somebody has to pay for it. 

Mr. Evans, let me shift gears and ask you a question. You did 

a recent University of Chicago study on the Consumer Financial 

Protection Agency, as it is so called? 

Mr. EVANS. Yes, that is correct. 

Mr. BACHUS. You state that under conservative assumptions, 

that legislation would increase interest rates consumers pay by at 

least 160 basis points, reduce consumer borrowing by at least 2.1 

percent, and reduce net new jobs created in the economy by 4.3 

percent? 

Mr. EVANS. Those are the findings, yes, sir. 

Mr. BACHUS. And that is conservative, right? 

Mr. EVANS. Certainly, the first two are. 

Mr. BACHUS. Okay. 160 basis points? You said what now? 

Mr. EVANS. The first two statements you said, the 160 basis 

points, that is conservative. 

27 

Mr. BACHUS. Conservative. That it would raise interest rates by 

that amount and reduce consumer borrowing by at least 2 percent? 

Mr. EVANS. That is correct. 

Mr. BACHUS. What effects would that have on our economy? 

Mr. EVANS. In the long run, it would have a terrible effect on the 

economy. And remember, the CFPA is a very onerous and very intrusive form of regulation. So in the long run, my belief and the 

result of the study is it would have a serious effect in terms of the 

access that consumers and, very importantly, small businesses will 

have to credit. 

In the short term, I think it is particularly problematic, the 

CFPA, and the reason it is particularly problematic is it creates an 

enormous amount of uncertainty for lenders, imposes a lot of potentially very high costs on them, and I think in the short term the 

result of the passage of the CFP Act in its current form would have 

a very serious effect on access to credit and a negative effect on the 

economy. 

Mr. BACHUS. And those were conservative assumptions. I can’t 

imagine if— 

Mr. GUTIERREZ. The time of the gentleman has expired. We are 

going to recess. We have some votes, and we will be back right 

after the votes. 

[recess] 

Mr. WATT. [presiding] The Chair has asked me to continue the 

process. I was the next in line to ask questions anyway, so we will 

consider the hearing reconvened and I will yield myself 5 minutes 

as soon as we find somebody who can operate the clock for us. 

Let me just make a couple of comments in my 5 minutes of time. 

I am one of those people who has the luxury—or the curse—of serving on both the Judiciary Committee and the Financial Services 

Committee. And I think I got some appreciation during the last 

term of Congress of how complicated a subject this whole interchange fee issue is over in the Judiciary Committee when there 

was an effort made to solve the retailers’ problem by allowing them 

to band together and disregard the antitrust laws as a counterweight to the power of the industry on the other side. I didn’t think 

that was a reasonable solution, not because I didn’t think probably 

that there were some problems that needed to be addressed, but I 

just didn’t think that was the appropriate solution. It was the only 

solution that the Judiciary Committee could really fashion within 

its jurisdiction since it has jurisdiction over the antitrust laws, but 

that didn’t necessarily make it an appropriate solution to the problem. 

There are multiple players here. The one thing I found out is 

that there are retailers, there are banks, there are credit card companies, there are credit unions who, despite the fact that they issue 

credit cards, have a slightly different position sometimes than the 

banks, and of course there are consumers. So I identified at least 

five different interests that have to be taken into account during 

my evaluation of this in the Judiciary Committee. 

I think today’s hearing actually is a very productive thing because one of the concerns I had about what we were doing in Judiciary was that I didn’t think we had enough hearings for people to 

understand the relative interest of those five and potentially other 

28 

parties to this discussion. And while we don’t ever understand completely the totality of nuances and facts and different circumstances in any area that we legislate in, I think we do better 

legislation the more we understand about the various interests that 

people have in it, and we have at least then the capacity to try to 

balance those interests from a public policy perspective. So that is 

kind of the way I am approaching this. I think this is a valuable 

hearing because it adds to the level of knowledge that we as members of the committee have to try to fashion a solution. 

Now, having said that, the question I would raise I guess is this; 

we did a credit card bill on the consumer side that constrained certain kinds of conduct vis-a-vis consumers. Is there anybody who 

thinks that some kind of legislation on the other side that has the 

potential to impact consumers through interchange fees is not an 

appropriate exercise? Is there anybody on this panel who believes 

we should be doing nothing? Just raise your hand if you believe we 

should be doing nothing. 

Ms. DUPLESSIS. I do. 

Mr. WATT. Tell me why you think we ought to be doing nothing. 

Ms. DUPLESSIS. I am not going to say that I believe that we 

should be doing nothing— 

Mr. WATT. Okay. Well, then you are not going to be responsive 

to the question I asked. I didn’t ask what we ought to be doing, 

I just asked is there anybody who believes we ought to be doing 

nothing. 

Is there anybody who believes—and my time is running out— 

who believes that we shouldn’t at least be taking a look at the 

interchange fee side of this equation in the interest of consumers 

and all of the parties as we did on the other side when we addressed—maybe not the same way, but some kind of framework on 

the interchange side of this equation? Does anybody think we 

shouldn’t be at least exploring that possibility? 

Mr. CAVERLY. I just want to make a comment. 

Mr. WATT. Mr. Caverly is getting ready to make a comment. I 

am not sure it is in response to my question, but go ahead. 

Mr. CAVERLY. I think there is a danger in getting involved in regulating interchange fees. 

Mr. WATT. There is always a danger in everything we do, I understand that. But my impression, to be honest with you, is that 

there is so much inconsistency out there, and that this is an area 

that at least we need to be looking carefully at. I am not sure that 

I have decided what the solutions ought to be. I am not sure I even 

understand all of the problems that exist; I am just trying to get 

a basic understanding. 

But my time has expired. I used most of it making my opening 

statement. So I am going to go on to Mr. Sherman from California 

for 5 minutes. 

Mr. SHERMAN. Thank you, Mr. Chairman. 

We have dealt with this same issue in Judiciary where the proposed solution was to deal with antitrust law to allow retailers to 

get together and bargain. Over there, what I suggested was, what 

if we limited to retailers with 500 or fewer employees. And my concern then was that the proponents of dealing with the interchange 

fee paint this picture, and I don’t have to describe the picture that 

29 

well, it is actually the same picture that is on Cathy Miller’s report, and that is a picture of a small store. And they say we have 

to help the small store. And then I proposed an amendment that 

would limit it all the way up to 500 employees, and the proponents 

of the bill beat the amendment. 

Why, Mr. Duncan, do we not simply address the picture that is 

being painted, which is that the small stores aren’t being treated 

well? Why do we need to help WalMart? 

Mr. DUNCAN. Well, it is not a matter of helping WalMart or the 

small stores solely. The problem is we have a market that is not 

working, as we discussed in Judiciary. And if we believe that competition is good for all merchants, all banks, and all consumers, 

then we need to remove fetters on competition for everyone. 

Mr. SHERMAN. I understand the theory. But if WalMart’s costs 

go down, does that mean they charge me lower prices or make 

higher profits? And if the interchange fee is less, does that mean 

that I don’t get my miles? The point here is that the credit card 

companies are competing. They are competing to try to get as many 

cards in people’s hands as possible. Sometimes, that is a problem 

in that they extend credit that people can’t afford to pay. They 

have been jolted out of doing that. They may be going too much in 

the other direction. 

But right now, the stores have to pay a lot. And the cards compete for business by giving me free miles. Why should I lose my 

free miles so that WalMart’s costs go down? How certain am I that 

WalMart is going to pass that savings on to me? 

Mr. DUNCAN. Well, let me try to explain how the savings works. 

Obviously, every merchant, if this were to pass, would pass the 

savings on in a different way. Let me explain how that works. Merchants compete for market share. And if you are in a market that 

favors low-cost products, you want to grow that. So what you will 

do— 

Mr. SHERMAN. Sir, I am in a market that favors high profits and 

big dividends. So I will shop at the stores in my area. I am not 

going to get lower prices. I am not going to get a cleaner store. I 

am just going to see that WalMart’s dividends per share go up. 

How does that help me? 

Mr. DUNCAN. If in fact—let’s take two stores competing, if they 

are in the cost-sensitive market. If one of them is returning the 

costs and the other isn’t, as I said in my oral testimony, the one 

that is returning the costs grows their market share. 

But you could have a different scenario. You could have a highend store which says—I will use Nordstrom as an example, and 

they don’t compete on price, they compete on service. And so they 

will provide more of what their customers want in terms of more 

service because that is how they— 

Mr. SHERMAN. You are assuming that retailing is such a competitive market that every savings is passed forward to consumers. 

And I am telling you about a different area, where in fact it isn’t 

so competitive, and the lower costs translate into higher dividends 

for shareholders. If the image you are trying to paint in favor of 

this bill is a small store, I would think we would want to limit it 

to small stores. 

30 

But I want to ask one other question. Why not simply solve this 

problem by giving me a 1 percent discount for paying cash? Why 

won’t your members do that for me? 

Mr. DUNCAN. There are two questions there. One of them is, do 

the card companies put up barriers to us providing discounts for 

cash? And they have put enough barriers in place that most retailers can’t do it. A few can. That is the quick answer to that. 

Mr. SHERMAN. What are these barriers and why can some retailers jump over them in a single bound and others are constrained 

by gravity? I have been told by the other side that all your members are just free to give me a cash discount. They don’t, for their 

own marketing reasons. 

Mr. DUNCAN. No, that is not accurate. 

Mr. SHERMAN. What if we simply prohibited all barriers to giving 

a discount for paying cash? 

Mr. DUNCAN. That is an excellent idea, and in fact that idea was 

proposed in the other body by Senators Durbin and Bond, and the 

banks screamed bloody murder that we might pass the savings on 

to consumers, so they tried to block it. 

Mr. SHERMAN. I will for the record ask Mr. Caverly to respond 

to that and see if he screams bloody murder about that. I yield 

back. 

Mr. CAVERLY. As a follow-up to that statement, I believe the merchants already have the ability. Irrespective of any new legislation, 

merchants can provide a cash discount under the current rules. 

And back to the question, there has been a lot of discussion about 

consumers and how the consumers are going to benefit. 

Mr. SHERMAN. My time has expired. 

Mr. WATT. [presiding] The gentleman’s time has expired. The 

gentleman from New York, Mr. Meeks, is recognized. 

Mr. MEEKS. Thank you, Mr. Chairman. And I have been listening to the hearing in my office, and I am not sure—I heard Mr. 

Scott’s opening statement. And I kind of agree with him, because 

I have constituents on both sides. And so that is why I have been 

listening with a lot of intent. 

But let me just ask a question, I think that Mr. Sherman was 

asking to Mr. Duncan, and just say, what if we included in this bill 

language that said all savings from this bill had to be passed 

through to customers, and they had to be posted transparently so 

that they could ensure you are not simply extracting margin from 

credit card companies to pass through to individual retail companies? Would you have any objection to that? 

Mr. DUNCAN. Sure. Absolutely. 

Mr. MEEKS. You would have an objection? 

Mr. DUNCAN. I would have an objection because you would simply be substituting one restraint, the restraints they put on us now 

as to how and when we can offer discounts, for a different set of 

restraints as to how we would have to accord— 

Mr. MEEKS. Let me go on that because it seems on the one hand, 

someone is saying this is going to save the consumers some money. 

And if it is going to save the consumers—that is the reason—then 

it seems to me it should not be a problem in posting, well, this is 

how we are saving you some money. And as a result, the money 

31 

is not going back into our pockets, this money is going to consumers. 

Mr. DUNCAN. I see what you are saying. Let me say it a different 

way. As I was just saying to Mr. Sherman, different stores will respond depending upon their particular market. So one store might 

decide, for example, that we are going to give you free gift wrapping if you use a cheaper form of payment. You use a debit card, 

you use cash, we will give you free gift wrapping. That is a savings 

to the consumer, but it is not in the same way as a dollars savings 

that you would see. 

Mr. MEEKS. I want to ask you that in a second, but I want to 

go just about another concern because we only have these 5-minute 

interviews here. But Ms.—I hope I am pronouncing your name correctly—‘‘Duplessis?’’ 

Ms. DUPLESSIS. ‘‘Duplessis.’’ 

Mr. MEEKS. ‘‘Duplessis.’’ Senator Duplessis. I was listening to 

you also. Here is one of the concerns that I have about unintended 

consequences. And I think this is what you were getting at, I just 

want to make sure, about reducing access to credit. And especially 

it is important at this time when our economy is in the most need, 

and generally I think people utilize their credit cards more as they 

spend more money. 

And I think what your testimony—based upon your testimony 

this morning, I am concerned that it will further have a disproportionate impact on access to credit, especially for minorities and people of color and others who are already—basically, those people 

who are already on the margin of being able to have access to credit. Can you share your thoughts on that? 

Ms. DUPLESSIS. Yes. You are right on target with what we are 

talking about when we say that there could be some unintended 

consequences. But in addition, on the merchants’ side, when we 

talked about unintended consequences that they are not factoring 

into this equation, we are talking about the issue that cash is not 

a cheaper form of payment. Cash is perhaps a more expensive form 

because that merchant, by using electronic payments, that merchant now does not have to pay for the transportation of that cash. 

That merchant, while that cash is sitting in their cash register, it 

is not earning interest for them. When they are using an electronic 

form of payment, that cash is deposited in their accounts immediately. So that merchant has immediate availability to reinvest 

those dollars. 

We have not even talked about the money that they are making 

as a result of being able to have immediate availability of cash. In 

addition, they do not have courier expenses, which goes to the bottom line. That is a cost savings for being able to accept electronic 

payment. 

Mr. MEEKS. Let me ask Mr. Duncan. I am sorry I am cutting you 

off, because I see my time is about up. But I heard in his testimony 

or read in his written testimony that he said debit cards are plastic 

checks. Who is responsible for collecting the payment in the case 

of a bounced check? And I thought that is the retailer. As opposed 

to, in the case of a credit card or a debit card, isn’t it the bank or 

the credit card company that is behind it? Is that not correct? And 

so therefore, I am wondering, are there good estimates of the cost 

32 

burden that collections on bounced checks imposed on retailers before credit and debit cards became the predominant form of payment? 

Mr. DUNCAN. There have been a number of companies who have 

looked into that. And I hate to disagree with the senator, but in 

fact the cost of accepting cash is a fraction of the cost of accepting 

credit cards or debit cards, a small fraction. Checks, we have found, 

cost us virtually nothing in comparison with the cost of taking 

debit cards or credit cards. 

Let me just put it a simple way: It doesn’t cost any more to carry a $10 bill to the bank than it does to carry $1,000 in bills to the 

bank. 

Ms. DUPLESSIS. Yes it does, sir. As a banker, there are things 

called analysis charges. And every bill that you deposit into a bank, 

there is a charge for handling that money. 

Mr. DUNCAN. Let me say that a $1 bill versus a $100 bill. 

Ms. DUPLESSIS. Okay. 

Mr. GREEN. [presiding] Excuse me, friends. While we are enjoying the debate, the chairman expects us to move along. We have 

another hearing that will take place here at 2:00 today. 

Mr. Scott of Georgia is now recognized for 5 minutes. 

Mr. SCOTT. Thank you, Mr. Chairman. Could you all tell me why 

the interchange fees have been rising so? Particularly with some of 

the technological changes that are being made, why have they been 

rising so fast? 

Mr. CAVERLY. The fee itself as a percent of the transaction has 

not risen. That fee as a percentage has stayed relatively flat over 

the last decade. What you are seeing, though, is an increased use 

of plastic cards as a form of payment, an increase in sales volume 

associated with the use of debit and credit cards. But the fee itself 

as a percentage has remained relatively flat. 

Mr. MIERZWINSKI. Mr. Scott, if I could just respond. It is a time 

when it should be declining; because of the cost of providing the 

product, it should be declining, not staying flat. 

Ms. DUPLESSIS. Actually, the costs of providing the product has 

escalated, because we now have other issues to contend with, fraud 

and those types of issues, breaches in card security that sometimes 

the merchant doesn’t have the necessary infrastructure to stop card 

breaches. And so those costs are borne by the bank and the issuing 

card carrier, holder, because we now have to try and handle those 

issues that the merchant doesn’t bear. 

Mr. SCOTT. But isn’t fraud going down? 

Ms. DUPLESSIS. No, not at all. It is getting worse. 

Mr. CAVERLY. We also have to contend on an ongoing basis with 

data breaches. And in late 2008, early 2009, there was a data 

breach at a merchant processing company, and that caused our 

credit union to reissue about 50,000 new cards at a cost of 

$150,000. So there are ongoing costs. 

Yes, I understand the theory is the payment system is in place, 

but there are ongoing costs, and they are escalating. 

Ms. MILLER. Sir, if I could interrupt whenever you are ready? 

Mr. SCOTT. Yes. 

Ms. MILLER. In my small store, in my situation I go to the bank. 

We do daily deposits. I deposit cash. It doesn’t cost me money to 

33 

deposit cash. It doesn’t matter if I put in $1 or I put in $1,000. If 

I deposit a check that I decide to take from a consumer, it costs 

me 15 cents to deposit their check into my banking account. So if 

a customer writes me a check for $1.35 for a bottle of water, I pay 

15 cents. 

If they decide to ask my husband Warren for $200 cash back, I 

have to go somewhere, it costs me 15 cents. If the person uses their 

debit card, their credit card in my store, it costs me 20 cents every 

time I swipe that card, plus my transactions fees, which I find out 

at the end of the month. 

And I beg to differ—maybe in Mr. Caverly’s situation, he says 

fees haven’t gone up—but my fees have gone up. And since I testified in 2006, credit card usage has gone up over 50 percent in our 

store. People are using plastic. I want to be able to take it. I don’t 

want to discriminate against my customers. I don’t want to say, 

okay, you are giving me cash, this is going to be your price. 

We are a small operation. We don’t scan. And it would just be 

a major nightmare. And I would suggest if you removed any barriers, give us a chance to give a consumer a discount or a free product for any type of payment. 

Ms. DUPLESSIS. Sir, can I read a statement from Visa and the 

rules with regards to surcharging? 

Mr. SCOTT. Sure, go ahead. 

Ms. DUPLESSIS. If I may. It says: ‘‘Always treat Visa transactions 

like any other transaction. That is, you may not impose a surcharge on a Visa transaction, but you may, however, offer a discount for cash transactions.’’ 

So I don’t understand why we keep saying that Visa or 

MasterCard doesn’t allow merchants to charge a discount for using 

cash. It says it directly in the agreement between the merchant. 

Ms. MILLER. I am not saying—okay. Go ahead. 

Ms. DUPLESSIS. Would you like this? 

Ms. MILLER. I am not saying that is not true. I know I can’t add 

a surcharge to my consumer. 

Ms. DUPLESSIS. You have been saying all along that you can’t. 

Mr. SCOTT. All right. 

Ms. MILLER. No, I am saying I can do a cash discount, but I don’t 

want do a cash discount. 

Ms. DUPLESSIS. You don’t want to do a cash discount. That is different than not being able to. 

Mr. GREEN. The member is in control of the time. Mr. Scott. 

Mr. SCOTT. I have 5 minutes. And now some of that is gone. But 

if you do, just allow them to come through me. This is good giveand-take. This is exactly what we need. 

Let me ask a couple of questions about our credit unions and 

smaller banks. How can reasonable rates be established so that 

some of the smaller community banks and credit unions can continue to offer credit services for their customers? 

Ms. DUPLESSIS. It is all about relationships, sir. If I have a merchant who is banking with Liberty Bank, that merchant is based 

on the number of relationships or the type of relationships they 

have with me, i.e. their personal accounts, a loan, other types of 

products, then I can in totality look at those relationships and negotiate their fees and as well as their interchange fees. 

34 

So this notion that merchants and retailers can’t negotiate interchange fees is just false. We do it all the time. But it is based on 

a relationship that individual small retailer has with their bank. 

Mr. GREEN. The time has expired, Mr. Scott. We will have to get 

the question for the record. Thank you. 

Mr. Moore is recognized for 5 minutes. 

Mr. MOORE OF KANSAS. Thank you. Mr. Caverly, while some may 

be more concerned with large firms like Visa or WalMart in this 

debate, I wonder how this interchange proposal will affect small 

businesses who need access to credit: community banks and credit 

unions, as well as small merchants who are competing against 

large retailers. 

As you know, our financial system remains fragile. And I hear 

from small businesses in Kansas that have lost access to credit, or 

they see their credit line slashed, if there is a dramatic change in 

interchange rules today, what effect would it have on credit unions 

and community banks? 

Mr. CAVERLY. The effect would be significant. Kind of going back 

to this specific bill with the honor-all-cards rule, I think that would 

create mass confusion for our consumers, for our members, to not 

have the confidence that when they walk up to a merchant and see 

the Visa sticker on the door that their card will be honored or accepted. 

But with respect to a reduction in interchange fees, there is a 

cost, there is an ongoing cost to offering these card programs. And 

in this discussion—the question of what would happen if interchange fees are reduced is not an academic question or an academic discussion. We can look at what happened in Australia when 

the government did step in and reduced interchange fees. The merchants received to the tune of about $900 million a year in benefit. 

That benefit was not passed on to consumers. What did happen, 

though, is many small issuers, perhaps like a credit union or a 

small community bank, were forced out of the market. But ultimately, consumers ended up paying more because now to replace 

that loss in interchange income, the issuers had to begin charging 

fees, annual fees for cards, higher annual fees for rewards programs. 

So I think ultimately that is the impact. Significant impact on 

the credit union, but more importantly a significant impact on our 

membership and consumers. 

Mr. MOORE OF KANSAS. Senator Duplessis, do you have any additional comments? 

Ms. DUPLESSIS. No, I think he basically hit the nail on the head. 

Mr. MOORE OF KANSAS. Thank you. In today’s economy, Ms. Miller, would sweeping changes to interchange rules help or hurt 

small retailers? And would you be concerned these small retailers 

would lose access to credit? 

Ms. MILLER. Yes, it would help us. I don’t believe that we would 

lose access to credit or to the use of it. It has just become so predominant in our world today, if the consumer wants it, it is going 

to happen. 

The big thing, when I testified earlier, is just if we could set up 

a minimum, like Congressmen Welch and Shuster have proposed 

in this bill, it would be a godsend to small businesses. Because— 

35 

like my examples with the gum, my examples with the potato 

chips, a bottle of water. It is real and it happens every day. So yes, 

it would help us, sir. 

Mr. MOORE OF KANSAS. Okay. Thank you. I am aware the Government Accountability Office, GAO, is working on a report they 

will release soon on interchange fees. But looking at the report 

they wrote last year on the impact of interchange fees on the Federal Government, the GAO found that in countries that have rolled 

back interchange fees to less than 1 percent of transactions, consumers did not necessarily reap the benefits. 

I don’t know if there is a lot of interest in simply transferring 

profits from one industry to another, but why not require all savings from interchange fees be automatically transferred to consumers? 

Ms. Miller, do you have any views on that? And Mr. Duncan as 

well? 

Ms. MILLER. To be totally honest, I have never thought of it the 

way that you are talking about it. Would it be passed on to my consumers? Yes, it definitely would. You talk about competition, there 

is not a lot around us. We are a small store. There are 850 people 

in town. We have a one-room school house across the road. You 

have to go 25 miles to Montpelier, you have to go 50 miles to Burlington. I have to take care of my customers. If I don’t take care 

of my customers, the doors are going to close. I need help. 

Mr. MOORE OF KANSAS. Mr. Duncan, do you have any thoughts? 

Mr. DUNCAN. Sure. Let me start with the GAO report. It is unfortunate in that GAO report that the staff chose to rely on a study 

that was actually a MasterCard study, rather than going to the 

Federal Reserve Bank of Australia. Because if they had spoken 

with the Federal Reserve Bank, they would have found that in fact 

there had been significant savings to consumers as a result of the 

changes in Australia. 

And in fact, I was at a conference in Chicago just recently, the Chicago Fed, where they talked about $1.1 billion in returns to consumers as a result of the changes that they had made there. 

In terms of the other issue, if I may just briefly— 

Mr. MOORE OF KANSAS. Sure. 

Mr. DUNCAN. In terms of the honor-all-cards rule, I think there 

has been some mischaracterization of the Shuster-Welch bill. The 

honor-all-cards rule when it was first enacted was actually an 

honor-all-banks rule. What it said is if you got a card from Nevada 

or a card from Colorado or Massachusetts, they all have to be accepted. 

What the card companies did was they took that rule and they 

perverted it and they said it is not just honor all banks; it is honor 

all products that we put our name on. So if we issue a very expensive product, you have to take that. The Welch-Shuster bill would 

take it back to the original honor-all-banks rule so cards from all 

banks and all credit unions would still be accepted. 

Mr. MOORE OF KANSAS. Thank you, sir. I yield back. 

Mr. GREEN. Thank you. Mr. Cleaver is recognized for 5 minutes. 

Mr. CLEAVER. Thank you, Mr. Chairman. Mr. Duncan, you said 

earlier, and I think several have quoted you that the debit card is 

a plastic check. And you still stick by what you said earlier? 

36 

Mr. DUNCAN. Yes. 

Mr. CLEAVER. Okay. Senator, do you agree? 

Ms. DUPLESSIS. No. Well, I agree that it could be considered a 

plastic check, absolutely. 

Mr. CLEAVER. Okay. When a check is presented by a merchant, 

either through the machine—Emanuel Cleaver has just written a 

check here for $50—they do the machine to check the balance, and 

they come back and say sorry, you are writing a check for $35, you 

only have $25 in your account, I am sorry, we can’t do business. 

Ms. DUPLESSIS. You bring up a really good point. That is called 

remote deposit capture, in which a merchant can take that check, 

run it through a scanner, and it talks with the bank to determine 

if funds are there. 

Mr. CLEAVER. Okay. 

Ms. DUPLESSIS. But there is a fee for that, too. That merchant 

pays a fee. You can call it an interchange fee, but there is a fee 

that merchant pays for that convenience. 

Mr. CLEAVER. Right. Good. Now, but then we have a problem. 

And that is the same thing could be done with a debit card. It is 

a plastic check. But it is not. And so what the debit card does is 

create a high-interest loan. And if you are making loans, what is 

the difference between a loan shark, which is defined as an interest 

rate of between 10 and 20 percent—the new definition, not the 

Mafia and the Godfather stuff—but the definition of 10 to 20 percent. So if you can find out that a paper check has insufficient 

funds, couldn’t you also find out that the debit card— 

Ms. DUPLESSIS. You do. It is all real-time. It is all the same process. 

Mr. CLEAVER. So explain how banks were able to end up with 

$24 billion, with a ‘‘B,’’ billion dollars in overdraft fees. 

Ms. DUPLESSIS. That is when you use the old process of depositing a check. And that is an extremely great point. Because for 

that merchant, they have a couple of options. They can take that 

paper check, not pay for the service of scanning that check to get 

real-time dollars, and have those dollars automatically deposited 

into their account. They don’t have the cost of a bounced check. 

But if they take that same check and bring it to their bank for 

processing, then they have some risk there. They have the risk that 

the check will not be honored. That is a cost to that merchant. 

Mr. CLEAVER. So when the debit card is swiped— 

Ms. DUPLESSIS. Real-time. 

Ms. MILLER. If there is no money there, it says ‘‘declined.’’ 

Ms. DUPLESSIS. It says ‘‘declined.’’ Same with the check. It is the 

same process, two different machines. 

Mr. CLEAVER. Okay. But explain how you end up with a $24 billion balance sheet on overdrafts with both debit cards and paper 

checks— 

Ms. DUPLESSIS. You don’t. 

Mr. CLEAVER. —which is up 35 percent from last year. 

Ms. DUPLESSIS. No, sir, you don’t. Let me try and get you there. 

What is happening, when that transaction comes in, it depends— 

you have in a person’s activity, you have numerous transactions 

that are posted. 

37 

Mr. CLEAVER. Okay. I don’t want to learn. What I want you to do is tell me, how did the banks come up with $35 billion more 

than they did 2 years previous to that in overdraft fees? 

Ms. DUPLESSIS. It wasn’t based on real time authorization. It was 

not based on real time authorization, sir. If that bank gives you an 

authorization that the money is good, whether you do it with a 

check and it is scanned, or with a debit card, when you get an authorization the money is automatically, immediately—they call it 

presentment—taken from your account. 

So the overdrafts that banks receive, the billion dollars that you 

say that the industry has received— 

Mr. CLEAVER. Twenty-four billion. 

Ms. DUPLESSIS. But you are talking an industry, not one bank. 

The industry, that the industry has received, is not based on credit 

card or check scanning real-time transactions. Because the money 

is already accounted for. 

Mr. GREEN. The gentleman’s time has expired. We will now recognize the ranking member, Mr. Hensarling, for as much of my 

time as he may consume. And I will have 5 minutes. 

Mr. HENSARLING. Thank you, Mr. Chairman. I appreciate your 

indulgence. I just have a couple more questions. And in the interests of time, I am happy to have the witnesses submit their answers in writing. 

The question of the Australian experience has come up. It is the 

only similar legislation I have seen in a modern economy dealing 

with interchange. Mr. Duncan, apparently you take issue with the 

prevalent studies that say that when merchant fees dropped, they 

did not result in lower prices from consumers. So I would be interested in what studies you have, if you would submit them in writing, since what I have seen shows— 

Mr. DUNCAN. I will submit the statements of the Federal Reserve 

in fact, yes. 

Mr. HENSARLING. Fine. Send that, please. 

Also, I have seen studies that show that after that legislation 

was passed, merchants began adding credit card surcharges to 

goods, increasing costs to consumers. And on the competition side, 

one of the major bank cards shut down in 2006, lessening competition for consumers. 

Again, if you have facts or studies that are to the contrary, if you 

would submit those in writing. 

One question for you, Mr. Mierzwinski. And that is, it is my understanding if this legislation passes, that the usual contract clause 

that ensures that consumers have universal acceptance of their 

cards will be thrown out. And as an organization that ostensibly 

lobbies in favor of consumers, if you would submit an answer in 

writing how that benefits the consumer, because at the moment, it 

is beyond me. 

Thank you, Mr. Chairman, for your indulgence. 

Mr. GREEN. Thank you. 

With the remainder of my time, which is a little more than 3 

minutes, let’s just start with Ms. Miller, and we will give each of 

you an opportunity to give a closing statement. I do ask that you 

be as terse as possible so that the rest of your colleagues will have 

an opportunity to respond. 

38 

Ms. Miller, any final words that you would like to share with us? 

Ms. MILLER. I wasn’t really ready. But I guess my biggest thing 

is, please support Congressmen Welch and Shuster in this bill. If 

I can be of any more assistance to anybody, I am only a phone call 

away, an e-mail away. I want to help. 

And another thing, too, I don’t know if you really understand 

this; we can’t talk to our customers about this. I can’t, according 

to their rules and regulations, tell my customers what they are 

paying in fees through my business. So I am going to go back to 

the store tonight, and tomorrow morning everybody’s going to be 

like wow, what is up? And I can’t talk about it. So please support 

their bill. Thank you. 

Mr. GREEN. All right. Sir? 

Mr. CAVERLY. To respond to that comment, my understanding is 

that Visa and MasterCard both allow the merchants to provide 

that information to their customers in terms of the fee structure. 

That can be provided by a merchant to their customers. 

In closing, or to wrap this up, I think Congressman Scott had 

mentioned this in his opening comments, that I think the key question is what would happen to the consumer? And again, I am here 

representing the 92 million— 

Mr. GREEN. I am going to have to ask that you wrap it up, because I do want to hear from the other panelists. 

Mr. CAVERLY. Okay. I am here representing the 92 million credit 

union members and the 178,000 members in my credit union. And 

I think ultimately, whether it is this legislation or other legislation 

that will reduce interchange fees, it is going to hurt the consumer. 

Mr. GREEN. Next, please. 

Mr. MIERZWINSKI. Very briefly, first, I will respond in detail to 

Mr. Hensarling’s question. But I don’t believe the honor-all-cards 

rule is actually meant as a consumer protection rule. I refer to Mr. 

Duncan’s comments. 

Second, I strongly concur with Mr. Cleaver that we need overdraft protection at point of sale so that consumers can decline and 

not pay those billions of dollars in overdraft fees since they have 

the real-time solution. 

And third, I would submit the interchange market is broken and 

needs reform. But the retail market, I need to be convinced the retail market is broken and needs the kinds of reforms the banks 

claim it needs. 

Mr. GREEN. Thank you, sir. You will each have approximately 30 

seconds. 

Ms. DUPLESSIS. Thank you. What I would like do is just ask that 

you really consider and truly understand the true unintended consequences that trying to regulate these fees could have not only on 

the small community banks, but also on the merchants themselves. 

I don’t think they actually realize what those unintended consequences will be. 

Mr. GREEN. Sir? 

Mr. DUNCAN. I would first of all echo Ms. Miller’s comments 

about the Welch-Shuster bill. And I would add to that just one 

point. For markets to work so that everyone benefits, we need two 

things: We need transparency and we need competition. We don’t 

have either of those now. And the bill will help us achieve that. 

39 

Mr. GREEN. Thank you very much. This panel is excused. And we 

will ask that you move away as expeditiously as possible. 

We ask that the next panel move forward and be seated. And we 

thank you for your patience. We did have a number of votes that 

interceded. So thank you very much for your patience that you 

have demonstrated. 

Thank you. We would like to welcome this, our third and final 

panel. And we are honored to have with us today the deputy director for national priorities for Consumer Action, Ms. Ruth, and I believe the last name will be ‘‘Susswein.’’ 

Ms. SUSSWEIN. ‘‘Susswein.’’ 

Mr. GREEN. ‘‘Susswein.’’ Thank you. 

We have the senior vice president and general counsel for ABA 

Card Policy Council with the American Bankers Association. This 

would be Kenneth J. Clayton. 

We have the president of the National Small Business Association, Todd McCracken. 

We have the senior compliance counsel with the National Association of Federal Credit Unions, Anthony Demangone. 

And finally, we have the manager of the Safe Credit Cards 

Project, the Pew Charitable Trusts, Mr. Nick Bourke. 

We will start with Ms. Susswein, and each of you will have 5 

minutes. And when you finish, Ms. Susswein, I will of course announce the next speaker. 

You may proceed. You now have 5 minutes to summarize your 

comments. 

STATEMENT OF RUTH SUSSWEIN, DEPUTY DIRECTOR, 

NATIONAL PRIORITIES, CONSUMER ACTION 

Ms. SUSSWEIN. Thank you, Congressman. And thank you to the 

committee for having me testify today on behalf of Consumer Action. I am Ruth Susswein with the nonprofit education and advocacy group Consumer Action. For more than 2 decades, we have 

been reporting on credit card rates and fees to track industry 

trends and assist consumers in comparing cards. We are one of the 

groups that consumers call when they have a credit card problem. 

I would like to express our appreciation today, first of all, for the 

chairman’s leadership on consumer protection issues, and particularly for supporting the Consumer Financial Protection Agency. We 

are also grateful for the tenacity on this issue. We strongly support 

H.R. 3639, to establish an earlier effective date for the Credit 

CARD Act. 

We are going to focus our testimony today on the exploitive practices of some card issuers and how some of these practices have 

taken place since the Act was signed into law. 

We have been conducting extensive annual credit card surveys at 

Consumer Action since the mid-1980’s. We survey each of the top 

credit card issuers, from banks, credit unions, and low rate issuers. 

In our 2009 survey, we discovered that between March and June, 

some major credit card issuers had arbitrarily increased rates, 

spiked fees, and hiked minimum payments. There appeared to be 

no rational reason for these increases, no jump in the prime, no 

other reason other than issuers making good on threats that credit 

40 

would dry up and cardholders would see costs rise with the passage 

of the Credit CARD Act. 

A few examples: Bank of America has a Platinum Plus card that 

the purchase rate went up to 46 percent. Citi had 3 cards that 

went up 26 to 42 percent within that March to June period. Within 

3 months, some cards went up as much as 3 percentage points. We 

have also found fees that spiked between March and June. 

Consumer Action also assists consumers with all sorts of problems. And we hear from our complaint hotline. I would like to give 

you just a brief sample of some of the things we have been hearing 

about this problem. A Chase customer for 19 years saw his minimum payment jump from 2 percent to 5 percent; his amount 

raised, going up from $250 a month to over $600 a month. He told 

us, ‘‘We have excellent credit. We have done a terrific job managing 

our money during severe economic conditions.’’ And yet this is a 

terrible way to treat good customers. 

A Maryland cardholder contacted us in desperation when her 

rate more than doubled. It went from 12.49 percent to a whopping 

29.9 percent; her monthly minimum went from an affordable $151 

a month to $471 a month. She couldn’t pay it. When she contacted 

the issuer to try to arrange an affordable payment plan, she was 

turned down. And she acknowledged that she had been late with 

one payment when her due date was moved back a week from the 

4th to the 30th. She understood being hit with a late fee, but not 

a 140 percent interest rate hike. 

We happened to intervene on that cardholder’s behalf, and ultimately, the bank was able to help her. But not everyone is that fortunate. Had the Credit CARD Act been in effect already, her late 

payment would not have allowed her rate to more than double, and 

that entire ordeal could have been avoided. 

We hear from scores of cardholders who have paid on time each 

month who have seen their rates rise, often double, often for no 

reason at all. We hear from cardholders who say they have three 

and four cards where they have seen rates as much as double. 

One cardholder I spoke to yesterday said, ‘‘I have done nothing 

wrong. I have lived up to my obligations, and I am being treated 

like a deadbeat. And when I call the company and complain, what 

they say is, ‘there is nothing we can do about it.’’’ 

Cardholders who have seen their rate go from 7.9 fixed to 17.9 

variable complain to the company and are told it is a business decision based upon economic factors. Factors that are beyond a cardholder’s control, even though they are told their rates are based on 

risk-based pricing. 

If the credit card law was in effect today, issuers would still have 

the freedom to raise rates for arbitrary reasons, but they would not 

be able to apply the increase to the balance in most cases. 

We don’t accept the notion that card issuers must find ways to 

replenish their coffers on the backs of cardholders. We think there 

is a direct link between some of the indefensible practices and today’s high default rates. 

There is no logic in taking a customer who is responsible, who 

is meeting his monthly bills and paying interest to boot, and hiking 

rates, spiking minimum payments, and transforming the healthy 

customer into an unhealthy one. We think that cardholders have 

41 

cried out to Congress to add fairness and limits to this lopsided 

lending system. 

Mr. GREEN. Ma’am, we will have to get the rest of your statement in the record. You will be asked some questions, and perhaps 

you will have an opportunity to expound. But we must move forward. Thank you so much. I am sorry. 

[The prepared statement of Ms. Susswein can be found on page 

221 of the appendix.] 

Mr. GREEN. Mr. Clayton, please, you will have 5 minutes to summarize. 

STATEMENT OF KENNETH J. CLAYTON, SENIOR VICE PRESIDENT AND GENERAL COUNSEL, ABA CARD POLICY COUNCIL, 

AMERICAN BANKERS ASSOCIATION (ABA) 

Mr. CLAYTON. Thank you, Mr. Green. Thank you for the opportunity to testify on H.R. 3639, a bill that would move up the effective date of the broad mandates of the CARD Act to December 1st 

of this year. 

Let me say at the outset that all card lenders, whether they are 

the largest financial institutions in the country or the smallest 

community banks, are working hard to implement the CARD Act 

as soon as possible. The Act requires a fundamental change in the 

credit card marketplace, with consumers provided greater control 

over the terms and use of their card. Card issuers recognize that 

Congress has spoken, and that changes must come in how we interact with our customers. 

However, while we understand that some members of this committee continue to express concern over actions taken by issuers in 

the marketplace, we believe that there are both strong practical 

and policy reasons for not adopting H.R. 3639. In short, we believe 

that its enactment will actually exacerbate the problems experienced by consumers, small businesses, and the broader economy in 

accessing reasonably priced credit. 

In my testimony today, I would like to make three basic points: 

First, full implementation of the provisions of the CARD Act is 

a practical impossibility. Implementation of that Act is an enormous task, requiring the complete reworking of internal operations, 

risk management models, funding calculations, employee training, 

and computer coding necessary to service hundreds of millions of 

accounts every day. To do this right requires an investment of hundreds of millions of dollars, thousands upon thousands of manpower hours, and perhaps, most importantly, sufficient time. The 

timeframe provided in H.R. 3639 is inadequate for the task at 

hand. The Federal Reserve just recently issued an 800-page proposal seeking public comment on provisions of the CARD Act. Comments are due in mid-November. There is not sufficient time for 

the Fed to review the comments, revise the rule to incorporate appropriate changes, issue a final rule before December 1st, and expect institutions to immediately change their systems to fully comply with the new rules by that December 1st date. 

It becomes even more difficult when you consider that in some 

instances, proposed rules do not yet exist, and that technological 

solutions to the various challenges posed by the new rules will take 

time to develop. 

42 

Besides the practical hurdles of speeding up compliance, other 

negative consequences are likely. Thousands of small community 

banks that issue credit cards would be negatively impacted by the 

change. Retailers that offer private label cards in concert with 

major card issuers run the risk of system failures at the peak time 

of the holiday season. This is due to the inadequate time under the 

proposed bill to implement and test the systems changes required. 

This could mean significant lost sales for retailers at a time period 

where merchants typically receive 25 to 40 percent of their annual 

sales volume, not to mention the substantial customer confusion, 

anger, and loss of convenience that would be caused. 

My second point is that the industry is very sensitive to the concerns that you, Mr. Chairman, Congresswoman Maloney, and others have raised over increased rates in the marketplace. The CARD 

Act includes a provision requiring 45-day advance notice for any 

rate increase, with the right for the consumer to say no. That provision has already been implemented and went into effect on August 20, 2009, nearly 2 months ago. Thus, consumers are already 

protected in this area. 

My third and final point is this: The cumulative impact of six 

straight quarters of job losses is putting tremendous financial pressures on both individuals and financial institutions. Falling behind 

on debt payments is an unfortunate side effect of high unemployment and a frozen job market. Simply put, this has made for a very 

difficult lending environment, and the industry is experiencing significant losses. Lenders must take steps to mitigate risk, which has 

led to the price increases and credit line reductions that you have 

seen in the marketplace. To do otherwise would seriously compromise our ability to make loans in the future. 

The requirements of the CARD Act that limit prudent risk management merely exacerbates the challenges presented by the economy. Moving up the effective date of that Act would increase the 

likelihood of systems failures, expensive litigation, and underwriting problems, adding to the pressure to increase rates and cut 

available credit. We believe that consumers, small businesses, and 

the U.S. economy will suffer if such a result comes to pass. Thank 

you for considering our views. 

[The prepared statement of Mr. Clayton can be found on page 

120 of the appendix.] 

Mr. GREEN. Thank you. 

Mr. McCracken, you are recognized for 5 minutes, sir. 

STATEMENT OF TODD McCRACKEN, PRESIDENT, NATIONAL 

SMALL BUSINESS ASSOCIATION (NSBA) 

Mr. MCCRACKEN. Thank you very much. I appreciate the opportunity to be here today. Again, my name is Todd McCracken. I am 

the president of the National Small Business Association, America’s oldest small business advocacy organization. 

When I testified before this committee’s Subcommittee on Financial Institutions and Consumer Credit in March, I spoke at some 

length to the difficulties America’s small business owners were encountering in their attempts to access credit. Unfortunately, the 

situation is little improved. 

43 

In its July 2009 quarterly Senior Loan Officer Opinion Survey, 

the U.S. Federal Reserve reported that over the previous 3 months, 

domestic banks continued to tighten standards and terms on all 

major types of loans to businesses and households. Banks also reported that they expected their lending standards across all loan 

categories to remain tighter than their average levels over the past 

decade until at least the second half of 2010. 

Credit cards are now the most common source of financing for 

America’s small business owners. According to our 2008 nationwide 

survey of small- and mid-sized businesses, 44 percent of small businesses identified credit cards as a source of financing that their 

company has used in the previous 12 months, more than any other 

source of financing, including business earnings. 

The results of more recent internal surveys have been even more 

dramatic. When asked what types of financing their firms have 

used in the previous 12 months, 59 percent of the small businesses 

in 2009 identified credit cards. In 1993, only 16 percent of small 

business owners identified credit cards as a source of funding. And 

over a third of the respondents in the credit card survey also reported that a quarter or more of their overall debt financing was 

comprised of credit card debt. 

In 2009, small business owners have experienced a litany of 

abuses and deteriorating credit terms unrelated to their past performances. Nearly 80 percent of the small business respondents to 

the credit card survey said that the terms of their cards have gotten worse in the last 5 years. Almost half of the respondents reported that they had encountered a credit card due date that 

seemed to change randomly. And 57 percent reported that they had 

received a bill too close to the due date to mail their payment in 

on time. 

Furthermore, a quarter of the respondents reported that their interest rates increased between February and April 2009, while a 

third reported their credit limit had been reduced in the previous 

6 months. 

According to a recent article in the Wall Street Journal, credit 

card lines have been cut by over $1.25 trillion in the last 2 years, 

and 10 percent of all credit card accounts have been canceled. The 

same article asserts that lenders began reducing available credit by 

ZIP Code in the fourth quarter of 2007, and have been cutting inactive accounts, whether or not the customer viewed the account as 

a liquidity vehicle for the past 4 quarters. 

While NSBA supports the expedited enactment of the protections 

contained in the Credit CARD Act, it also urges Congress and this 

committee to address two additional aspects of the credit card industry that urgently need reform. One is the absence of explicit 

protections for small business cards; and two is the secretive and 

uncompetitive interchange system. 

The largest loophole, we believe, in the Credit CARD Act was the 

absence of the explicit protection for small business owners who 

use their cards for business purposes. Since the legislation amended the Truth in Lending Act, which, except for a few provisions, 

does not apply to business cards, its protections were limited to 

consumer credit cards. Although the credit cards of many, if not 

most, small business owners are based on the individual owner’s 

44 

personal credit history, it is conceivable that issuers could legally 

consider them exempt from the law’s vital protections. Although in 

the past, issuers appear largely to have kept most of their cards 

in compliance with TILA, there is no guarantee this convention will 

continue, especially when one considers that its basis appears to 

have been practicality and not legal obligation. Since issuers were 

able to subject consumer cards to the most egregious of practices, 

there was little incentive to distinguish between consumer and 

small business cards. 

An unintended consequence of the Credit CARD Act is that it 

could provide just such an incentive. Thankfully, legislation has 

been introduced that would correct this oversight and extend equal 

protection to the cards used by small business owners with 50 employees or fewer. 

The Small Business Credit CARD Act of 2009 also contains an 

opt-out provision so that small business owners who do not want 

their cards protected in such a manner can choose to keep any current agreements. 

H.R. 3457, this was the bill, is supported by a range of organizations from consumer groups to small business groups, and I respectfully request this committee consider this bipartisan, commonsense legislation as soon as possible. 

I am going to submit my statement on interchange fees for the 

record—because I think you have dealt with that to a great extent 

today—and conclude. 

If millions of small firms are going to be created during this recession, as they have been in previous recessions and economic 

downturns, then they are largely going to be financed with credit 

cards, given the current lending environment. Although credit 

cards are an inherently expensive and volatile source of financing 

for many entrepreneurs, they are also indispensable. 

Congress can and must ensure, however, that they are not allowed to function simply as a mechanism with which to siphon capital from the backbone of the economy to the top 10 U.S. banks. 

[The prepared statement of Mr. McCracken can be found on page 

194 of the appendix.] 

Mr. GREEN. Thank you, sir. 

Mr. Demangone is now recognized for 5 minutes. 

STATEMENT OF ANTHONY DEMANGONE, DIRECTOR OF REGULATORY COMPLIANCE/SENIOR COMPLIANCE COUNSEL, THE 

NATIONAL ASSOCIATION OF FEDERAL CREDIT UNIONS 

(NAFCU) 

Mr. DEMANGONE. Good afternoon. My name is Anthony 

Demangone, and I am the director of regulatory compliance at 

NAFCU and its senior compliance counsel. As the committee is 

well aware, there have been many recent changes to the Truth in 

Lending Act and Regulation Z over the past year-and-a-half. The 

Federal Reserve Board has taken numerous actions regarding credit card regulations, real estate lending, and student lending, among 

others. 

Most recently, the Federal Reserve Board announced an 841- 

page proposal to implement provisions of the Credit CARD Act, set 

to go into effect February 22nd of next year. 

45 

In short, America’s credit unions have been asked to handle a 

seemingly endless number of changes to the lending law. I fear 

these changes are being adopted with only larger commercial banks 

in mind. 

I assure you, however, the resources of the credit union industry 

and other small institutions are being stretched to the limit. This 

challenge is further exacerbated by the short compliance deadlines 

included in the Credit CARD Act, deadlines made even shorter by 

the legislation this committee is examining today. 

It is with this in mind that NAFCU strongly opposes the Expedited CARD Reform for Consumers Act. NAFCU understands that 

the Credit CARD Act was a response to a legitimate need to rein 

in unscrupulous credit card practices. Unfortunately, the measures 

targeting unscrupulous lenders created operational burdens for an 

entire industry. Simply put, credit unions will not be able to bring 

their systems into entire compliance by December 1st of this year. 

The best argument against a shorter effective date is the unintended consequences of the 21-day provision included in the Credit 

CARD Act. This provision was intended to require lenders to send 

out credit card statements 21 days in advance of the payment due 

date for their credit card account. Unfortunately, the provision was 

drafted so that it applied to all open-ended consumer plans. This 

seemingly small issue proved to be a very substantial and costly 

problem for credit unions. It will likely lead to the end of credit 

unions issuing consolidated statements, the elimination of the ability to pick due dates, and weekly and biweekly payment dates will 

cease to exist for open-ended lending. 

Simply put, the 21-day issue is the largest single compliance burden the credit union industry has faced in the last decade. More 

importantly, it is an issue that could have been resolved easily if 

not for the fact that the effective date followed so quickly after the 

bill was signed into law. 

When Congress passes legislation, it dictates what must be done. 

Federal agencies and private industry, however, are responsible for 

determining how it gets done. Simply put, there needs to be sufficient time between when Congress decides what must be done and 

when industry is required to have their operational systems in 

place to accomplish that end. 

Equally important is the fact that it would be virtually impossible for the Federal Reserve to promulgate regulations to meet the 

December 1st effective date. Moreover, even if the Fed could act in 

time, I assure you industry could not. We are currently digesting 

the 841-page proposal the Fed recently announced, which will implement the provisions set to go into effect February 22nd of next 

year. Many institutions will have difficulty modifying their operations to meet that date, much less a December 1st deadline. Given 

that compliance is factually impossible, there seems little reason to 

move the date forward. 

Taken together, the CARD Act and the subsequent changes to 

Regulation Z will create significant changes in the credit card industry. It is customary, natural, and necessary for lenders to reconsider their own business plan and practices in light of such dramatic changes. Indeed, it would be irresponsible for management 

to carry on current practices without considering the long-term efVerDate Nov 24 2008 17:41 Apr 21, 2010 Jkt 055812 PO 00000 Frm 00049 Fmt 6633 Sfmt 6633 K:\DOCS\55812.TXT TERRIE
46 

fect these changes will have on the market. Yet a shorter effective 

date will force many lenders to ignore or discount long-term planning for the simple reason that they must devote all of their time 

and energy to compliance. 

The bill’s provisions regarding increasing interest rates and 

changing terms makes sense when considered individually. However, they will dramatically change the way institutions conduct 

their conduct. An artificially short effective date, however, handcuffs senior management, and will make long-term strategic planning more difficult. 

While we understand the committee’s concerns with the abuses 

in the credit card industry, a December 1st effective date will do 

little to alleviate the problem. At the same time, an earlier effective 

date will exacerbate our operational problems, likely create new 

problems, and increase the overall cost of compliance for all lenders. 

Thank you for the opportunity to provide our views on this important topic, and I am pleased to respond to any questions. 

[The prepared statement of Mr. Demangone can be found on 

page 129 of the appendix.] 

Mr. GREEN. Thank you, sir. 

Mr. Bourke, 5 minutes. 

STATEMENT OF NICK BOURKE, MANAGER, SAFE CREDIT 

CARDS PROJECT, THE PEW CHARITABLE TRUSTS 

Mr. BOURKE. Thank you, Mr. Chairman. My name is Nick 

Bourke, and I am the manager of the Safe Credit Cards Project at 

the Pew Charitable Trusts. We are a nonprofit, nonpartisan organization dedicated to fact-based solutions to important public policy 

challenges, including safe and transparent credit cards. 

In 2007, my project began studying the perceived dangers in 

credit cards. And one of the things that we did is we reached out 

to the industry, and we tried to find some voluntary market-based 

solutions, and we tried to find other solutions, including doing independent research. I am going to talk about some of our research 

here today. More results will be published later this month. 

In 2008, the Federal Reserve made the legal determination that 

certain practices are unfair and deceptive. And one of the questions 

we had was, how widespread are these practices? So we looked at 

the application disclosures of all consumer credit cards offered online from the largest 12 issuers. This is a group that accounts for 

approximately 90 percent of the outstanding balances. 

We did this research last December and we did it again this 

July. And our July study covered more than 350 credit cards from 

these issuers. We found several things, including that median advertised rates had gone up significantly, 13 to 20 percent, depending upon a consumer’s credit profile. But that is not all. 

The first point I would like to make today is that since the passage of the Credit CARD Act, the situation has not become better 

for consumers. For example, 97.7 percent of the cards that we reviewed included anytime/any-reason change in terms and policies, 

which allowed the issuer to change the agreements, including raise 

interest rates on outstanding balances. That is up from 93 percent 

in December. 

47 

Overall, more than 90 percent of the cards that we looked at contained the most troublesome, unfair, and deceptive practices in the 

Federal Reserve’s review, low to high application of payments, socalled hair-trigger penalty repricing, and so on. 

None, not one of the cards that we looked at would have met the 

Federal Reserve’s fairness threshold, let alone met the Credit 

CARD Act. In fact, we saw some evidence that some issuers were 

moving in the opposite direction. 

My second point is while issuers wait to remove these unfair and 

deceptive practices, or to implement the Credit CARD Act, American families are at risk of significant harm. I have heard a lot of 

concern in this chamber just today, asking what is the impact on 

consumers and how can they benefit? 

Well, let’s look at two of these practices. Anytime/any-reason 

changes in terms and penalty interest rate increases on outstanding balances: In our March 2009 report, we discussed how 

just these two practices cost consumers at least $10 billion in a 1- 

year period. That is more than $800 million per month. So it would 

seem that time is against consumers in this situation. 

What does it mean to an individual? Well, let’s assume that you 

have a $3,000 balance, a relatively modest balance. If an issuer decides to raise your rate by 5 percentage points, that is about $150 

a year. But if they decide to raise your interest rate by about 15 

percentage points, that is $450 per year. And 15-percentage point 

increases are all too common based on our research. And your 

monthly minimum payment is going to swell dramatically. 

So in conclusion, our research supports accelerating the consumer protections in the Credit CARD Act. The Act will strengthen 

the agreements between cardholders and issuers, and it is designed 

to enhance transparency and fair dealing, which should make the 

market more competitive over time. 

Now, I do want to take this opportunity to recognize that the 

long-term benefits of the Credit CARD Act will depend in large 

part on what the Federal Reserve does next, especially in its rulemaking, to prevent unreasonable or disproportionate penalty fees 

and charges. 

Whatever the effective date of the Credit CARD Act, it will be 

important to ensure that the Federal Reserve takes the time and 

the effort to enact strong consumer protections as well. And we 

have made some suggestions in that regard. Thank you very much. 

[The prepared statement of Mr. Bourke can be found on page 59 

of the appendix.] 

Mr. GREEN. Thank you for the additional 50 seconds that you 

have yielded. 

Mr. BOURKE. My pleasure. 

Mr. GREEN. The gentleman, Mr. Watt, is recognized for 5 minutes. 

Mr. WATT. I was kind of hoping you would go first, Mr. Chairman, so I could gather my thoughts. 

First of all, I apologize for missing the first three testimonies. I 

was trying to get here because I always like to hear the testimony 

more than I like to hear the questions, really. It is generally more 

helpful. 

48 

I assume, Mr. Clayton, you disagree vigorously with what Mr. 

Bourke testified. Do you? 

Mr. CLAYTON. It depends on which part you are talking about. 

Mr. WATT. The part where he thinks either that these practices 

have gotten worse, or that we need to expedite the implementation 

of— 

Mr. CLAYTON. We disagree with both. 

Mr. WATT. Okay. And why? 

Mr. CLAYTON. In terms of expediting, as I mentioned in my opening statement—and I apologize, and I will be glad to chat with you 

about it—it is impossible for us to comply with the moving up of 

the effective date of the provisions of the Act. This is a massive rewrite of the way we do business. We understand that Congress has 

spoken, and we understand that we have to change our ways. 

Mr. WATT. If he is right that you are changing the terms and 

moving the target on your own, is it less difficult to do that than 

to change the targets in a direction that complies with the new 

statutory provisions that are coming online? 

Mr. CLAYTON. Mr. Watt, we disagree with the statement that— 

Mr. WATT. Okay. Well, maybe I should have gotten you to address that part of it first, then. 

Mr. CLAYTON. Can I say quickly that Congress has already acted 

on the issue of interest rate increases and basically said, as of August 20th of this year, that consumers have to get 45 days advance 

notice, and they can say no to any rate increases. So we have heard 

the concerns about increased rates. The Congress has spoken and 

said you cannot do that, and they have given an implementation/ 

transition period. And they have said if someone in the marketplace increases the rate, as alleged, the consumer can say no, they 

can close their account, and they can pay back their balance in a 

reasonable amount of time. So the problem that is being alleged 

isn’t there anymore. 

Are interest rates being increased? Yes. It is broadly a function 

of the marketplace and the economy and the significant number of 

unemployed people who are out there, and the fact that a lot of 

people aren’t paying back their bills, and the only way we can loan 

in the future is to have people pay back their bills, and we have 

to deal with that. And so that is how the market is reacting. 

Mr. WATT. I assume that nobody on this panel is dealing with 

interchange fees. Has that issue come up on this panel, or that was 

all of the last panel dealing with that? Nobody here is dealing with 

that? Okay. I won’t ask any questions about it. We beat that horse 

to death in the last panel. 

Okay. I am sure I could be more constructive if I had heard the 

testimony or if I had read the testimony, either one, both of which 

I confess to not having done. So I think, constructively, I will just 

yield back to the gentleman who heard the testimony. I will yield 

him the balance of my time. 

Mr. GREEN. Your time will be put to good use. Thank you, Mr. 

Chairman. 

We will now hear from Mr. Cleaver for 5 minutes. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

I do want to bring up interchange fees because I think there is 

a connection. I am wondering about the coincidence that the interVerDate Nov 24 2008 17:41 Apr 21, 2010 Jkt 055812 PO 00000 Frm 00052 Fmt 6633 Sfmt 6633 K:\DOCS\55812.TXT TERRIE
49 

change fees are rising so dramatically now at the same time that 

we are closing in on the deadline for the new credit card law coming into effect. I am sure you were here earlier, so you heard the 

exchange with the representative from the bank. I talked about 

overdraft fees reaching $24 billion, which is up 35 percent from the 

previous year. 

Are all of you saying that is just coincidental? Will anybody say 

it is coincidental? 

Mr. MCCRACKEN. I am not sure there is a strong connection. We 

think the interchange fees need to be looked at, and it does create 

a difficult situation for a lot of small companies, especially small 

retailers. They can’t control the prices, they are deeply frustrated 

by it, and we think the system needs to change. 

I don’t see a significant connection because this has been building for some time now with interchange fees. I don’t see something 

that has happened in the last 6 months. 

Mr. CLEAVER. Well, I am just basing this on the FDIC study. I 

didn’t just pull that figure up. It was a 35 percent increase? 

Mr. MCCRACKEN. Well, if you are talking about a 35 percent increase in—one of the things that you have seen happening is more 

people are using cards increasingly— 

Mr. CLEAVER. Debit cards? 

Mr. MCCRACKEN. Debit cards, and we have seen, of course, the 

trend in the increasing use of credit cards for a long time. It has 

been a steady rise. But you have mentioned and all of us mentioned before the increase in overdraft fees. And that I think also 

is directly tied to the increasing use of debit cards over credit 

cards. 

Mr. CLAYTON. Mr. Cleaver, can I jump in for a second? 

Mr. CLEAVER. Yes. 

Mr. CLAYTON. I want to be clear here. Interchange fees are not 

going up. The aggregate amount of fees taken in because of interchange has increased because— 

Mr. CLEAVER. I understand that. It is about 2 percent, 175 of 

which probably is the interchange fee. 

Mr. CLAYTON. That is credit cards. For debit cards, it is below 

1 percent. That is different from overdrafts. I just wanted to be 

clear. 

Mr. CLEAVER. I understand that. What I want to do is make sure 

that I am wrong, that there is no coincidence. 

Mr. DEMANGONE. Sir, speaking on behalf of Federal credit 

unions, I can say there is no correlation to any increases in fee income with regard to overdraft protection and the changes that were 

in the Credit CARD Act. Those are separate. 

I would like to point out that our entire industry has been dealing with the overdraft issue. The Federal Reserve and the NCUA 

were working on this as far back as 2005, giving best practices on 

ways to better implement these plans more transparently. And the 

Federal Reserve has a proposal out there which will take effect 

sometime in 2010 which will greatly give consumers the ability to 

either opt in or opt out of overdraft protection programs. So the 

regulators have really taken this issue up strongly. And I think if 

things would just be allowed to play out as they are, I think you 

will see consumers are already on track to gain a lot of new beneVerDate Nov 24 2008 17:41 Apr 21, 2010 Jkt 055812 PO 00000 Frm 00053 Fmt 6633 Sfmt 6633 K:\DOCS\55812.TXT TERRIE
50 

fits and rights in the coming year just from the existing regulations 

that are about to be implemented. 

Mr. CLEAVER. Okay. Since you brought up the issue of regulations, I think all of you would agree I think that—or maybe I 

should ask whether or not you think you should be able to impose 

on consumers rules that are unfair or deceptive or anticompetitive. 

Mr. DEMANGONE. I can obviously say, no, we don’t think any unfair, deceptive rules should be placed on members. As memberowned financial institutions, a lot of the problems that you have 

heard, people keep talking about the top 10 credit card lenders, I 

guarantee you there is not a Federal Credit Union that is one of 

them. We have a usury ceiling of 18 percent. We have a prohibition 

against prepayment penalties. So it is frustrating for us as an industry to sometimes be painted with a broad brush. People point 

to the big credit card lenders— 

Mr. CLEAVER. I don’t want to do that. So everybody would agree 

that you do not want the ability to impose rules that are unfair or 

deceptive or anticompetitive; everybody agrees? Okay. So then why 

won’t you support giving a regulatory body the authority to review 

rules that you already comply with? 

Mr. DEMANGONE. Ultimately, I think what it is going to do is it 

is like adding another referee to the football game. We are going 

to have to pay for that referee’s salaries. Ultimately, it is going to 

increase compliance costs for each Federal credit union. And who 

bears those costs ultimately? The member owners. 

The Federal Reserve and NCUA we think already do a commendable job of enforcing actions. Are they perfect? No. And I think you 

will see them redouble their efforts in the years and months moving forward, but just to create a brand new agency, thinking that 

just another agency is going to protect consumers, I think there is 

a risk that it will be completely the opposite. Federal credit unions 

may move out of— 

Mr. CLEAVER. I know. But you already comply with the things 

that would be regulated. 

Mr. DEMANGONE. But if it applies to credit unions and there is 

another layer of examinations, that will greatly increase their compliance costs. It will be another examination that we have to prepare for, deal with, and that ultimately costs dollars in personnel 

and lost time, and ultimately member owners will bear those costs. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

Mr. GREEN. Ms. Susswein, you were interrupted, and I apologized to you, and you haven’t had an opportunity to speak, so I 

would like to accord you some of my time. I have about 5 minutes, 

so I would like to accord you some of my time to finish your statement. 

If you could, please leave just enough for me to ask one question, 

please. 

Ms. SUSSWEIN. Thank you, and thank you for your time. 

I really just wanted to make a couple of final points. One was 

that we think that, frankly, lenders have taken advantage of Congress’ generous timeframe in which to implement the law. Lawmakers accommodated card issuers who claimed that they needed 

time to reprogram computer systems. And we understand it is comVerDate Nov 24 2008 17:41 Apr 21, 2010 Jkt 055812 PO 00000 Frm 00054 Fmt 6633 Sfmt 6633 K:\DOCS\55812.TXT TERRIE
51 

plex, but issuers have used the time to use consumers as pawns in 

their game to maximize profits. 

If card issuers allocate payments right now from the lowest rate 

to the highest rate, my question is, why do they need 9 months to 

reverse that practice? That is a huge benefit to consumers, and one 

that wouldn’t seem to take so long. 

There are elements to this legislation, as we understand it, that 

won’t really be put into practice actually until August, 15 months 

after enactment. That seems to be an enormous amount of time. 

And we see the kind of damage that has been inflicted that I discussed earlier in my testimony to consumers. 

The main point we want to say is that we strongly support implementation of this credit card law as soon as possible. December 

1st sounds just fine to us. Consumers need the assistance now. 

Consumers have cried out to Congress over time saying that what 

we need is help in limiting some of these practices and curbing 

some of these abusive tactics. Congress heard us and enacted the 

Credit CARD Act, and we feel that it is time to move it up and to 

be able to take advantage of those protections. 

Lastly, I just want to point out that while Mr. Clayton may feel 

that the problem is solved, from a consumer’s perspective, having 

an opt-out is an excellent tool and we are very pleased to have it. 

But if we were all to opt out of every card we have because of its 

abusive practices, we wouldn’t have any credit as consumers, and 

companies would be out of business because they wouldn’t have 

anyone to lend to. 

Mr. GREEN. Thank you. 

Mr. Demangone, you indicated by way of gesture that you would 

like to respond to that, very briefly. 

Mr. DEMANGONE. Well, the issue of how you process payments is 

not all that complicated, and it is something that could be done 

rather quickly, but I would say that is probably one of 2,000 issues 

that lenders need to deal with within the Credit CARD Act and 

subsequent regulations. It is kind of a death by a thousand blows. 

Fee structuring and disclosures need to be changed, periodic 

statements need to be reworked. There are so many operational 

issues that credit unions need to rely on third parties. Those third 

parties have indicated to us, the individuals who would be responsible for doing this, that they can’t actually make the operational 

changes necessary just for the periodic statements. 

Just yesterday, I spent literally 31⁄2 hours with a credit union 

dealing with their rate and fee schedule trying to interpret 2 sections of the HOEPA rules which became effective October 1st. 

Every aspect of lending in a financial institution is being amended 

right now, so they need all the time they can to comply with 

RESPA, Truth in Lending, HOEPA, MDIA, all those requirements 

that are coming together all at once. 

Mr. GREEN. Mr. Bourke, you have indicated by way of gesture 

that you would like to respond. As briefly as possible, please. 

Mr. BOURKE. Thank you, Mr. Chairman. 

The low to high application of payments rule is one of the biggest 

aspects of this bill in terms of what it will save consumers. I would 

argue that probably the biggest aspect of this bill, the most important one for consumers, is stopping the practice of increasing interVerDate Nov 24 2008 17:41 Apr 21, 2010 Jkt 055812 PO 00000 Frm 00055 Fmt 6633 Sfmt 6633 K:\DOCS\55812.TXT TERRIE
52 

est rates on outstanding balances. And even though we do have 

new disclosure rules and right-to-cancel rules in place as of August, 

the core of the bill, the part that prevents issuers from raising interest rates on outstanding balances and really giving the consumers the benefit of the bargain that they already made isn’t 

going to take effect until February. And between those two issues, 

outstanding balances and application of payments, those are probably the biggest money-saving components for consumers. 

Mr. GREEN. Thank you. My question, quickly, will be a follow-up 

on what you said, Mr. Bourke, and follow-up to what Mr. Cleaver 

broached, and it is, are you convinced that all of this is coincidental 

with reference to the interest rate question that you just raised? Is 

it coincidental? That was the essence of what Mr. Cleaver was asking. If you think that it is coincidental, kindly extend a hand into 

the air so that I may see— 

Mr. BOURKE. I am sorry? 

Mr. GREEN. If you think the raising of the interest rates is coincidental, kindly raise a hand into the air. 

Mr. CLAYTON. I know I am not allowed to rephrase the question— 

Mr. GREEN. My time is up, but I would like to at least get the 

answer, if you would. If it is coincidental that interest rates going 

up at this time, to the extent that they have, it just happens to 

work this way, it has nothing to do with the fact that there are 

some rules that will be taking effect later on in the year, in fact, 

that would be February 22, 2010. Hands, please. 

If not, I will indicate for the record that everyone on the panel 

thinks that it is not coincidental. We do have one. 

Mr. CLAYTON. Mr. Green, I would like to add something into an 

explanation to that question, if you would like. 

Mr. GREEN. What I will have to ask you to do is submit it for 

the record in writing if you would. 

Our time has expired. And the Chair will note that some members may have additional questions for the panel, this panel as well 

as the others, which may be submitted in writing. Without objection, the hearing record will remain open for 30 days for members 

to submit written questions to these witnesses and to place their 

responses in the record. 

The hearing is now adjourned. 

[Whereupon, at 1:45 p.m., the hearing was adjourned.] 

(53) 

A P P E N D I X 

October 8, 2009 

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