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29–737 PDF 2006

S. HRG. 109–583

CREDIT CARD INTERCHANGE FEES: ANTITRUST

CONCERNS?

HEARING

BEFORE THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

JULY 19, 2006

Serial No. J–109–100

Printed for the use of the Committee on the Judiciary

(

(II)

COMMITTEE ON THE JUDICIARY 

ARLEN SPECTER, Pennsylvania, Chairman 

ORRIN G. HATCH, Utah 

CHARLES E. GRASSLEY, Iowa 

JON KYL, Arizona 

MIKE DEWINE, Ohio 

JEFF SESSIONS, Alabama 

LINDSEY O. GRAHAM, South Carolina 

JOHN CORNYN, Texas 

SAM BROWNBACK, Kansas 

TOM COBURN, Oklahoma 

PATRICK J. LEAHY, Vermont 

EDWARD M. KENNEDY, Massachusetts 

JOSEPH R. BIDEN, JR., Delaware 

HERBERT KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

RICHARD J. DURBIN, Illinois 

MICHAEL O’NEILL, Chief Counsel and Staff Director 

BRUCE A. COHEN, Democratic Chief Counsel and Staff Director 

(III)

C O N T E N T S 

STATEMENTS OF COMMITTEE MEMBERS 

Page

Cornyn, Hon. John, a U.S. Senator from the State of Texas ............................... 5

Durbin, Hon. Richard J., a U.S. Senator from the State of Illinois .................... 4

Grassley, Hon. Charles E., a U.S. Senator from the State of Iowa ..................... 4

Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont .................... 2

prepared statement .......................................................................................... 139

Specter, Hon. Arlen, a U.S. Senator from the State of Pennsylvania ................. 1

WITNESSES 

Cannon, W. Stephen, President and Managing Partner, Constantine Cannon, 

Washington, D.C., on behalf of the Merchants Payments Coalition, Inc. ....... 15

Douglass, Bill, Chief Executive Officer, Douglass Distributing Company, Sherman, Texas, on behalf of the National Association of Convenience Stores ..... 5

Floum, Joshua R., Executive Vice President, General Counsel, and Secretary, 

Visa U.S.A. Inc., Washington, D.C. .................................................................... 9

Miller, Kathy, Owner, Elmore Store, Elmore, Vermont ....................................... 7

Muris, Timothy J., former Chairman, Federal Trade Commission, Of Counsel, 

O’Melveny & Meyers, Washington, D.C. ............................................................ 13

Peirez, Joshua, Group Executive, Global Public Policy, and Associate General 

Counsel, MasterCard Worldwide, Purchase, New York .................................... 11

QUESTIONS AND ANSWERS 

Responses of Stephen W. Cannon to questions submitted by Senators Specter, 

Grassley and DeWine .......................................................................................... 27

Responses of Bill Douglass to questions submitted by Senators DeWine, Specter and Grassley ................................................................................................... 39

Responses of Joshua R. Floum to questions submitted by Senators Specter, 

Durbin, Grassley and DeWine ............................................................................ 43

Responses of Kathy Miller to questions submitted by Senators Specter and 

DeWine .................................................................................................................. 61

Responses of Timothy J. Muris to questions submitted by Senators Specter, 

Durbin and DeWine ............................................................................................. 62

Responses of Joshua Peirez to questions submitted by Senators Specter, 

DeWine, Grassley and Durbin ............................................................................ 68

SUBMISSIONS FOR THE RECORD 

Americans for Consumer Education & Competition, Rebecca Reid, Executive 

Director, Washington, D.C., statement .............................................................. 77

Cannon, W. Stephen, President and Managing Partner, Constantine Cannon, 

Washington, D.C., on behalf of the Merchants Payments Coalition, Inc., 

statement .............................................................................................................. 79

Consumer and public interest advocates, joint letter ........................................... 99

Douglass, Bill, Chief Executive Officer, Douglass Distributing Company, Sherman, Texas, on behalf of the National Association of Convenience Stores, 

statement .............................................................................................................. 106

Floum, Joshua R., Executive Vice President, General Counsel, and Secretary, 

Visa U.S.A. Inc., Washington, D.C., statement ................................................. 128

International Association of Airport Duty Free Stores, Michael Payne, Executive Director, Washington, D.C., letter ............................................................... 138

Miller, Kathy, Owner, Elmore Store, Elmore, Vermont, statement .................... 141

Page

IV

Muris, Timothy J., former Chairman, Federal Trade Commission, Of Counsel, 

O’Melveny & Meyers, Washington, D.C., statement ......................................... 146

National Association of College Stores, Oberlin, Ohio, letter .............................. 158

Natonal Association of Shell Marketers, Thomas F. West, President, Springfield, Virginia, letter ............................................................................................ 159

National Association of Theatre Owners, G. Kendrick Macdowell, General 

Counsel and Director of Government Affairs, Washington, D.C., letter ......... 160

National Association of Truck Stop Operators, Lisa J. Mullings, President 

and Chief Executive Officer, Washington, D.C., letter ..................................... 162

National Grocers Association, Arlington, Virginia, statement ............................. 164

National Restaurant Association, John Gay, Senior Vice President, Government Affairs & Public Policy, Washington, D.C., letter .................................... 173

National Retail Federation, Mallory B. Duncan, Senior Vice President, General Counsel, Washington, D.C., letter ............................................................... 174

Peirez, Joshua, Group Executive, Global Public Policy, and Associate General 

Counsel, MasterCard Worldwide, Purchase, New York, statement ................ 176

Petroleum Marketers Association of America, Holly Tuminello, Vice President, Arlington, Virginia, letter .......................................................................... 184

(1)

CREDIT CARD INTERCHANGE FEES: 

ANTITRUST CONCERNS? 

WEDNESDAY, JULY 19, 2006

UNITED STATES SENATE, COMMITTEE ON THE JUDICIARY, Washington, D.C. 

The Committee met, pursuant to notice, at 9:30 a.m., in room 

SD–226, Dirksen Senate Office Building, Hon. Arlen Specter, 

Chairman of the Committee, presiding. 

Present: Senators Specter, Hatch, Grassley, Kyl, Cornyn, Leahy, 

and Durbin. 

OPENING STATEMENT OF HON. ARLEN SPECTER, A U.S. 

SENATOR FROM THE STATE OF PENNSYLVANIA 

Chairman SPECTER. Good morning, ladies and gentlemen. It is 

9:30. The Senate Judiciary Committee will proceed now to our 

hearing on credit card exchange rates and the antitrust concerns 

raised by existing practices. 

Until recently, the two largest credit card companies—

MasterCard and Visa—operated as joint ventures among competing 

banks. The joint ventures MasterCard and Visa worked with member banks collectively to set exchange rates. Late last year, a group 

of merchants brought suit alleging that when the banks jointly set 

merchant fees, they violated the antitrust laws. The complaint alleges that the collective setting of interchange rates by banks that 

compete with each other to issue cards to consumers constitutes illegal price fixing. The higher exchange rates that result are passed 

on in the form of higher prices for goods to consumers, operating 

as an invisible tax on every purchase made by consumers. 

The merchants contended that the substantial overlap between 

the banks that are members of MasterCard and those who are 

members of Visa precludes competition between the two credit card 

companies, and Visa and MasterCard further prohibit merchants 

from charging a surcharge to customers who use the credit cards. 

The response has been from MasterCard and Visa that the interchange fees do not constitute illegal price fixing, and they point to 

the case of Texaco v. Dagher. Obviously, whatever is going on in 

litigation is a separate matter, and the Judiciary Committee hearings are not intended to and will not affect such judicial action. 

When you talk about per se violations and you talk about the 

rule of reason, that moves over to the area where Congress has the 

authority to modify the standards on antitrust. So obviously the 

courts function under the existing rules, but that does not preclude 

the Congress from setting new rules on antitrust violations. 

2

In May of 2006, MasterCard held an IPO to transfer control of 

its operation from its member banks to public stockholders, and although banks still own a minority interest in MasterCard, they are 

prohibited from owning voting stock, which is a sophisticated and 

subtle way of perhaps seeking to solve the problem, or perhaps not, 

by relinquishing control. 

At the same time, Visa created a Committee composed exclusively of independent members of its board of directors, not the 

member banks. And as a result of these changes, Visa and 

MasterCard member banks now contend that they no longer participate in the setting of exchange rates. 

Well, that may be so or that may not be so. It is obviously sophisticated legal work to try to divest control, but in the context of 

what has occurred in the past, and in the context of what the results may be, circumstantially you may have the same result. 

I am doing a lot of reading this morning from the memorandum 

because this is like working through a maze. It is very complicated 

as to how these arrangements are worked out. And we live today 

in a plastic world. You do not see money anymore at restaurants. 

You do not see money anymore in clothing stores. You do not see 

money anymore in grocery stores. You see plastic all the time. 

I have only one credit card personally so I can keep it straight. 

On the occasion when I do not pay on time, I am astounded at the 

interest rate. Just astounded. 

Australia has gone to price fixing. I am not suggesting that. But 

I note that the Treasury Department succeeded in stopping Visa 

and MasterCard from stopping banks from issuing American Express and Discover cards. When I saw that, I was really impressed 

with the power of Visa and MasterCard to stop banks from issuing 

American Express and Discover. I thought American Express was 

a pretty big player. 

Well, at any rate, it is very complicated. I have had quite a few 

complaints from Pennsylvanians and I have had complaints nationally as to what these implications are. So we are going to take a 

look. 

I am joined by my distinguished Ranking Member, Senator 

Leahy. Senator Leahy? 

STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR 

FROM THE STATE OF VERMONT 

Senator LEAHY. Thank you, Mr. Chairman, and I want to thank 

Vermont State Representative Warren Miller, who came down here 

with his wife, Kathy, to testify. Leaving Vermont at this time of 

year is not always the easiest thing to do, and I appreciate it. They 

have the Elmore Store, in Lake Elmore, Vermont. My first memories of going in there are when I was about 3 years old, with my 

parents, and getting an ice cream cone. I have been there many 

times since. I usually drop by and get caught up on the news, and 

they let me know what I need to know. I look forward to hearing 

from you. It is one of the last of the really quintessential country 

stores run by a family, hard-working, that makes it possible for a 

community to actually have a center. 

Now, Mr. Chairman, you mentioned that not too many of us have 

heard about these interchange fees, and that is true. I am still tryVerDate 0ct 09 2002 11:12 Sep 22, 2006 Jkt 029737 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\29737.TXT SJUD4 PsN: CMORC
3

ing to figure out these fees which retailers pay the bank to process 

credit card transactions, because ultimately they are going to be 

borne by the merchant and the consumers. 

We are being asked whether these fees are too high and whether 

they are too high because the associations of banks that handle 

credit cards are behaving unfairly in the marketplace. Just this 

week, the European Union’s Competition Authority announced that 

unless Visa and MasterCard change those fees, they are going to 

face an antitrust action. So it is not an issue we can ignore. 

The retailers tell me that interchange fees represent an increasingly large portion of their costs of doing business. They tell me 

that they are compelled to raise their prices and shift some of that 

cost burden onto their customers. And the customers then become 

harmed whether they are using a credit card, a debit card, or paying cash because the prices have to be up to cover the fees that go 

along with them. 

They also tell me—and I hear this from the Vermont Grocers Association and others—that they have not seen the rules for the 

interchange system. They cannot decipher the complicated billing 

schemes of the credit card companies. 

Now, there are many benefits to both retailers and consumers 

with credit cards: greater access to consumer purchasing power, 

more rapid payments, and increased payment options for consumers. In my household, it makes an easy way of keeping track 

of what we are spending. But you have to make sure that the cost 

of accepting those credit and debit cards does not outweigh the 

many possible benefits businesses and consumers should be enjoying. So we need more transparency. 

Mr. Chairman, I am sure it is the same in Pennsylvania. But I 

know the livelihood of many Vermonters depends greatly on the 

success of our small businesses. We are a State made up of many 

small businesses that play a very integral part in the community. 

They are part of the whole fabric of our community. I do not want 

to see interchange fees force smaller businesses, like the village 

store run by the Millers in Elmore, to take a net loss in order to 

both accept credit cards and sell the ice cream cones, the Green 

Mountain coffee, and everything else that makes a store like theirs 

a Vermont treasure, because in many of our towns that is the one 

central spot in the town, unless it is town meeting day when everybody is going to be in the town hall. Otherwise, that is the spot everybody goes. 

So we could say how great the Elmore Store is and how wonderful it is. It is very picturesque. I actually have a picture of it. It 

is a very picturesque place to be. But the family also has to make 

some money to be able to keep it going. 

So, Mr. Chairman, I am glad we are having this hearing, and I 

will put my whole statement in the record. 

Chairman SPECTER. Thank you, Senator Leahy. Without objection, your statement will be made a part of the record. 

[The prepared statement of Senator Leahy appears as a submission for the record.] 

Chairman SPECTER. Senator Grassley? 

Senator GRASSLEY. Could I have just 60 seconds? 

Chairman SPECTER. Sure. Senator Grassley, you are recognized. 

4

STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S. SENATOR 

FROM THE STATE OF IOWA 

Senator GRASSLEY. For several reasons. 

Number 1, I obviously owe you and Senator Leahy a thank you 

for holding a hearing because I was part of a group that asked for 

it. And then I am embarrassed to say that at 10 o’clock I have to 

have a meeting with our Ambassador Schwab on a lot of trade negotiations that are going on, so I will not be here very long. 

Chairman SPECTER. You are still Chairman of Finance, Senator 

Grassley. 

Senator GRASSLEY. I am trying to be, yes. 

[Laughter.] 

Senator GRASSLEY. And then thank you, explain that I will not 

be able to hear all of the testimony. I am going to stay until 1 

minute to 10 o’clock to hear what I can. And then to just, I think, 

emphasize what I heard Senator Leahy said and, Senator Specter, 

you may have said the same thing about the problems. And it is 

kind of a balancing act. I am probably one of the problems because 

I hardly ever use cash for anything. I would just as soon not carry 

around cash but use my credit card an awful lot for some things 

that maybe are not as significant purposes. 

But I am just astonished by the number of constituents I have 

come to even Washington or Iowa to complain about the very dramatic increases in charges that we have had on the use of credit 

cards and asking us to look into it. I do not know where we will 

come out, but I am glad you are having the hearing so we can look 

into it. 

Chairman SPECTER. Well, Senator Grassley, I had said that we 

are a plastic society anymore and do not see cash in grocery stores 

or clothing stores or restaurants. 

Senator Durbin, would you like 60 seconds by way of balance? 

STATEMENT OF HON. RICHARD J. DURBIN, A U.S. SENATOR 

FROM THE STATE OF ILLINOIS 

Senator DURBIN. Thank you. Thank you for the hearing. 

I am glad you are doing this. I am glad we are talking about this. 

I hope something good comes of it. We fought for 9 years on a 

bankruptcy bill that the credit card industry wanted desperately so 

that people would end up burdened with credit card debt even at 

the end of bankruptcy. They prevailed, and people now who are 

running up these credit card bills for everything under the sun are 

now going to carry that debt past bankruptcy for a lifetime. 

As Elizabeth Warren has said, we are creating these many little 

debtor prisons because special interest groups, credit card companies, and financial institutions are so powerful on Capitol Hill. 

It is unlikely that much will come of this hearing, but I thank 

you for having this hearing. It is a chance that the consumers will 

have a voice up here, and I think we need much more of that. 

I recently went to Reagan National Airport, and I saw a man in 

front of me use his credit card for a charge of less than a dollar. 

And I said to the woman at the cash register, ‘‘So what is the lowest amount you have ever had anybody put on a credit card here 

at the cash register?’’ And she said, ‘‘Oh, 29 cents.’’ And I thought 

to myself this is really out of hand. And when you consider the hidVerDate 0ct 09 2002 11:12 Sep 22, 2006 Jkt 029737 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\29737.TXT SJUD4 PsN: CMORC
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den fees that we are addressing here, this is a tax that everybody 

pays. This is a tax, a 2-percent tax on grocery purchases and a lot 

of other purchases, that is a being paid over and over at the expense of retail merchants in Vermont and Illinois and Pennsylvania. 

So thank you for this hearing. 

Chairman SPECTER. Senator Durbin, let me voice just a slight 

dissent. It is not likely that nothing good will come from this hearing. It is not likely. 

Senator Cornyn, you were the early bird here. Would you like 60 

seconds, or more? 

STATEMENT OF HON. JOHN CORNYN, A U.S. SENATOR FROM 

THE STATE OF TEXAS 

Senator CORNYN. Mr. Chairman, thank you for holding the hearing. I am glad to hear from all the witnesses, but particularly one 

of my constituents, Mr. Douglass, from Sherman, Texas, so thank 

you for doing this. I look forward to listening to all the testimony 

and learning more about this issue. 

Chairman SPECTER. Senator Hatch? 

Senator HATCH. No, thank you. I am just interested in the hearing. 

Chairman SPECTER. We now then turn to our first witness, Mr. 

Bill Douglass, who is the Chief Executive Officer of Douglass Distributing Company, has a record in corporate America with Exxon 

and Humble Oil; past Chair of the American Petroleum Institute; 

served in both the Marine Corps and the Army; born and educated 

in eastern Pennsylvania; and a bachelor’s degree from Muhlenberg 

College. 

Thank you for joining us, Mr. Douglass, and we look forward to 

your testimony. 

STATEMENT OF BILL DOUGLASS, CHIEF EXECUTIVE OFFICER, 

DOUGLASS DISTRIBUTING COMPANY, SHERMAN, TEXAS, ON 

BEHALF OF THE NATIONAL ASSOCIATION OF CONVENIENCE 

STORES 

Mr. DOUGLASS. Thank you and good morning, Mr. Chairman, 

Ranking Member Leahy, and members of the Committee. My 

name, as said, is Bill Douglass, and I am the CEO of Douglass Distributing Company. And my company, which is headquartered in 

Sherman, Texas, as Senator Cornyn said, operates 15 convenience 

stores and supplies gasoline and diesel to other retail locations in 

the Dallas-Fort Worth area. And I am here today, as said, representing the National Association of Convenience Stores, and I 

want to thank you all for holding this hearing. 

Credit card interchange fees hurt my customers who, in the end, 

have to pay for all these charges, and they hurt my business. Credit card fees are now the third highest operating cost for my business and for my industry. As a whole, the costs of credit cards are 

exceeded only by payroll and rent. 

I want to emphasize to this Committee that this market is broken and something must be done to fix it. The courts have said 

that Visa and MasterCard have market power, and I will tell you 

that the agreements among their member banks to charge the 

6

same fees and fix these fees are outrageous. While I am not a lawyer, I know I cannot agree with my competitors about what we will 

charge because it is against the law, and that should be just as 

true for the banks. 

About 60 percent of gasoline sales are paid for with credit or 

debit cards, and this is a staggering number, and it means one simple thing: I have to take these cards, or I will go out of business. 

Visa and MasterCard’s dominance is very similar to the dominance of Ma Bell before the breakup of AT&T, and protestations 

by Visa and MasterCard that merchants do not need to accept 

credit cards rings just as hollow as someone saying we could choose 

not to have telephone service. It ignores how business is done 

today. Accepting cards is as necessary as having a phone and other 

utilities. The market power and actions of Visa and MasterCard 

make this market completely different than the other two-sided 

markets the card associations like to talk about. No newspaper, for 

example, has the nationwide dominance that Visa and MasterCard 

have. And newspaper executives do not meet to agree on the rates 

they will charge for advertising. Yet that is just what some banks 

do as members of Visa and MasterCard. 

Recent changes in the governance structure at Visa and 

MasterCard have not changed this basic problem. The Committee, 

courts, and antitrust lawyers can debate the legal technicalities of 

this system, but from my perspective it makes no sense. The average convenience store paid about $40,000 in credit card fees in 

2005. The same store only made $42,000 in pre-tax profits in 2005. 

The fact that businesses in my industry are paying almost as much 

to the credit card companies each year as they are making before 

they pay Uncle Sam gives you a sense of just how broken this market is. 

My own fees this year are up 33 percent. And even paying all 

this money, I cannot get a copy of the rates I pay or the rules I 

must follow. The summaries of the rules on Visa’s and 

MasterCard’s websites are clearly inadequate, leaving out hundreds and hundreds of pages of rules. In my industry, the best example of this—or perhaps I should say the worst example—is 

something called ‘‘reason code 96.’’ This code comes up for retailers 

of gasoline and diesel when the purchase exceeds $50 for a Visa 

transaction or $75 for a MasterCard transaction. With these high 

gas prices we have had lately, exceeding these limits has become 

more common. But Visa and MasterCard say somewhere in their 

hidden rules that if a gas purchase exceeds these pre-approved levels, they can deny payment to the retailer. This is true even if the 

consumer pays and does not dispute the bill. This rule, as well as 

its secrecy, is abusive and amounts to a license to steal. 

Let me emphasize that this scheme is very unfair to our customers. The average American family pays $231 in interchange 

and related fees every year, and that is true whether or not the 

family even uses a credit or debit card. Because these fees are hidden in the cost of virtually everything we buy, even cash-paying 

customers ultimately pay for them. 

U.S. consumers are paying far more than their share. Even 

though our rates should be lower than other countries, just one 

look at the charts that we have over here will tell you something 

7

is wrong here. In truth, this is just a brief glimpse of the problems 

with this market. We look forward to working with the members 

of this Committee and the Congress to fix this broken market. 

Thank you. 

[The prepared statement of Mr. Douglass appears as a submission for the record.] 

Chairman SPECTER. Thank you very much, Mr. Douglass. 

I am going to yield to Senator Leahy to introduce Ms. Kathy Miller, who is from Vermont. Senator Leahy told me yesterday about 

his plans for August. He is going to be spending the entire month 

at the ‘‘fahm’’—f-a-h-m. 

Senator LEAHY. In Middlesex, although I was with some Elmore 

folks, John and Kathy Gilmore, this weekend. 

Kathy Miller owns the Elmore Store. Now, I did not—I just want 

you to know, we Vermonters are proud of each other. This is what 

the Elmore Store looks like. She is former Chair of the Vermont 

Grocers Association. She and her husband, who is here, Warren 

Miller, a State Representative, organized and sponsored the New 

England dog sled race in Lake Elmore. She volunteers at Elmore’s 

one- room school. And I am just very proud to have them here. 

I would have actually worn my Elmore Store T-shirt but it is at 

the ‘‘fahm’’—at the farm in Middlesex, Vermont. But thank you, I 

think Warren is going to give me another one. Thank you. 

Chairman SPECTER. Thank you for joining us, Ms. Miller, and 

the floor is yours. 

STATEMENT OF KATHY MILLER, OWNER, THE ELMORE STORE, 

ELMORE, VERMONT 

Ms. MILLER. Thank you. Mr. Chairman, Senator Leahy, and 

members of the Committee, good morning. I would like to say 

thank you for allowing me to testify today. My name is Kathy Miller, and I, along with my husband, Warren, and daughter, Kelly, 

own and operate 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 which represents our Nation’s supermarkets and grocery stores. 

Senator LEAHY. Is your microphone on? 

Ms. MILLER. Sorry. I thought I hit it. I would like to read what 

I prepared and then answer your questions later. I did not realize 

I was going to be blown up and hanging on the wall there, but I 

do have more postcards, if anyone would like to see closer up what 

we look like. 

[Laughter.] 

Ms. MILLER. And I thought I was the small guy in the picture. 

This is the store that we have owned and operated now for 24 

years. I am a fifth-generation Vermonter with deep roots in 

Elmore, Vermont. I am the ‘‘Mom’’ part of the operation while Warren, sitting behind me, is ‘‘Pop.’’ Warren was elected to the State 

legislature in Montpelier 4 years ago. We are not only committed 

to our store, but our community and our State 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, some days we ask 

ourselves. But we believe that we can and do make a difference to 

all the people in the community that depend on us. 

8

My concern as a small independent store may seem small to you, 

but it is a huge burden for us and very real. 

Credit card fees are collectively set by the card associations—

Visa and MasterCard—and we have no control over them. They are 

not negotiable and cannot be added on to the consumer’s bill. We 

cannot set minimum amounts to swipe cards, credit or debit. That 

is against Visa and MasterCard operating rules, so I am told by 

our local bank. The fees keep increasing to us, and our profit margin sinks down even lower. Last year, in 2005, we did $58,500 worth of plastic transactions. The credit card fees to us, out of pocket, were $4,400. Each time 

a customer swipes their card, it costs us 2.65 percent of the total 

dollar amount plus a 20- cent fee per sale. In our store we have 

two gas pumps that we own, not subsidized by any big petroleum 

company. When the price of gas goes up, so does interchange because the fee is a percentage rate. The banks make more even 

tough their costs are still the same. 

Last year alone, American consumers paid Visa and MasterCard about $30 billion in interchange fees. FMI members have seen 

their costs for these fees rise 700 percent in the last 10 years. 

Since I said I was coming to Washington, D.C., to testify on this 

issue, I cannot 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, but we cannot absorb it all. In the grocery business, 

we compete by lowering prices, not by raising them. I am not a 

lawyer or a huge Wal-Mart, but I know this is a huge problem that 

retailers across the U.S., large and small, are facing. So I ask that 

you look into this matter seriously. We have streamlined our business as best we can. Maintenance does not get done as it should, 

less money goes out in payroll, but we just keep absorbing the fees 

and try to survive. 

I would like to ask you on your next ride home, like Senator 

Leahy is going to do here soon, to look into your small towns and 

see how many vacant storefronts there are. Just this last winter 

alone, within a 50-mile radius of us four closed. Some days I feel 

like I should just turn in my keys, but we cannot. Excuse me. 

We are a small town of 850 people with one of two one- room 

schoolhouses left. We are the hub of the community. So when somebody needs something, who do you call? Mom and Pop at the 

Elmore Store. We are just trying to keep the doors open. 

Thank you. 

[The prepared statement of Ms. Miller appears as a submission 

for the record.] 

Chairman SPECTER. Thank you very much, Ms. Miller. 

We turn now to Mr. Joshua Floum, Executive Vice President, 

General Counsel, and Secretary of Visa U.S.A. Before joining Visa, 

Mr. Floum had a distinguished law practice, was Chair of the California firm of Holmes, Robert & Owen, before that with the San 

Francisco firm of Heller Erman; an undergraduate degree from the 

University of California and a law degree from Harvard. 

We appreciate your being with us today, Mr. Floum, and we look 

forward to your testimony. 

9

STATEMENT OF JOSHUA R. FLOUM, EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL, AND SECRETARY, VISA U.S.A. 

INC., WASHINGTON, D.C.

Mr. FLOUM. Thank you, Mr. Chairman. 

Chairman Specter, Senator Leahy, distinguished members of this 

Committee, my name is Josh Floum. I am the General Counsel and 

Executive Vice President of Visa U.S.A. I thank the Committee for 

giving me the opportunity to answer the important question posed, 

and, Mr. Chairman, I would request the Committee’s permission to 

submit my written testimony for the record. 

Chairman SPECTER. Your full statement will be made a part of 

the record, without objection. 

Mr. FLOUM. Thank you, Mr. Chairman. 

I am proud to be able to share with this Committee a bit about 

Visa’s history and the tremendous value that we drive to millions 

of American cardholders, retailers, and large and small financial 

institutions all around the country. We believe we have been a valuable engine which has helped to fuel the growth and efficiency of 

the American economy, and we think we continue to improve our 

products and services every day. 

Merchants play a key role within the Visa system. Visa enables 

the very smallest merchants to have the same payment opportunities as the very largest. Likewise, Visa provides to thousands of 

community banks and credit unions, large and often very small, 

who have the ability through our products and service to compete 

with the largest national banks. And as the merchants have told 

us, Visa services provide them with guarantee payment, increased 

sales, and higher profits. 

Visa provides enormous benefits to cardholders as well, and 

these benefits are just as important to us as those we provide to 

merchants. Visa services allow cardholders to access credit and deposit accounts and gives them zero- liability protection. Card 

issuers offer cardholders rebates, airline miles, and other benefits 

designed to encourage cardholders to use their cards. And we have 

also responded to consumer concerns about the overextension of 

credit, pioneering the U.S. debit card category in the 1970’s. Today, 

in fact, debit cards, which do not carry interest cards, make up 

more than half of our transactions. 

Clearly, the system is working. When a market is not functioning 

properly and there is ‘‘monopoly-like behavior,’’ one would expect 

output to be restricted and prices to be pushed up. But neither is 

the case within the Visa system. 

Merchants in the United States today pay a lower rate to accept 

general purpose payment cards than they did a half-century ago 

when those cards were first introduced. Visa’s pricing today remains lower than its smaller competitor, American Express, for example. Hardly the evidence of abuse of market power, as some 

merchants claim. 

Today, more cardholders and more merchants use and accept the 

card than ever before. In the past 3 years, more and more Visa 

cards have been put in the hands of U.S. cardholders. The number 

of merchant locations accepting the card has grown by almost a 

million locations—again, hardly the evidence that something is 

wrong in the marketplace. 

10

Cardholders today can choose between literally hundreds of credit and debit product offerings. Merchants also have many, many 

choices, with Visa, MasterCard, American Express, Discover, First 

Data, PayPal, Debitman, Google Checkout, and many others—not 

to mention cash and check—all vying for business, this is not an 

industry dominated by one or even a few firms. 

Price controls are a severe tool and often harm the people they 

are designed to protect. Lawmakers, regulators, and courts in the 

United States have declined the invitation to impose price caps, but 

regulators in other parts of the world have not exercised similar restraint. The impact of regulation overseas shows that consumers 

here in the United States would, in fact, be hurt by artificial price 

controls on interchange. 

Let’s take Australia as an example. Three years ago, the Reserve 

Bank of Australia imposed artificial price caps on interchange fees, 

the same fees that are at issue in discussion today. The Reserve 

Bank cut rates by some 43 percent, and that regulatory intervention backfired. Cardholders in Australia are paying more for payment cards than they did before, through higher annual fees and 

finance charges, and they are getting less in terms of reward programs and other rebates. Merchants, meanwhile, have seen their 

costs of payment acceptance decline, but there is no evidence they 

have passed these savings onto consumers in the former of lower 

retail prices. In fact, the Reserve Bank of Australia, which has 

promised that retail prices would decline as a result of the intervention, has given up even trying to prove the existence of the 

promised decline. 

The Committee poses the question whether there are antitrust 

concerns with interchange. Our answer is an unqualified ‘‘no.’’ The 

merchants behind these lawsuits will make their arguments in the 

courts, but we believe we achieved the right balance in values and 

costs as between merchants and cardholders, and that that issue 

is a business matter that should be driven by supply and demand 

in the relevant markets. Indeed, the courts have specifically looked 

at interchange in the past and in each court decision have decided 

that interchange does not pose an antitrust problem and, in fact, 

promotes healthy competition, efficiency, and innovation. 

Mr. Chairman, you mentioned the Dagher case at the outset, 

where the Supreme Court said that it is entirely lawful and appropriate for joint ventures to set pricing within their associations. Indeed, there is no other way they could function. 

In the past 30 years, Visa has built the most efficient, reliable, 

and secure payment system in the world. We are very proud to be 

a part of driving this country’s economic growth and efficiency by 

delivering tremendous value to cardholders and merchants. With 

more cardholders and merchants participating every day—— 

Chairman SPECTER. Mr. Floum, how much more time would you 

like? 

Mr. FLOUM. Just 5 seconds, Mr. Chairman. 

Chairman SPECTER. Thank you. 

Mr. FLOUM. With more and more cardholders and merchants 

participating today, there is no antitrust problem, no reason for 

Congress to intervene. 

11

Mr. Chairman, I wish to thank the Committee for giving me this 

opportunity and stand ready to answer any questions. 

[The prepared statement of Mr. Floum appears as a submission 

for the record.] 

Chairman SPECTER. Thank you very much, Mr. Floum. 

We now turn to Mr. Joshua Peirez, Associate General Counsel 

for MasterCard; previously was an associate at Clifford Chance, 

where he was an antitrust litigator; bachelor’s degree from Cornell 

and a law degree from the Brooklyn Law School. 

We appreciate your coming in today, Mr. Peirez, and look forward to your testimony. 

STATEMENT OF JOSHUA PEIREZ, GROUP EXECUTIVE, GLOBAL 

PUBLIC POLICY, AND ASSOCIATE GENERAL COUNSEL, 

MASTERCARD WORLDWIDE, PURCHASE, NEW YORK 

Mr. PEIREZ. Thank you. Good morning, Chairman Specter, Ranking Member Leahy, and members of the Committee. My name is 

Joshua Peirez, and I am a group executive with MasterCard Worldwide. It is my pleasure to appear before you this morning to discuss the highly innovative and efficient MasterCard system and the 

issue of interchange specifically. I ask that my full written testimony be submitted for the record. 

Chairman SPECTER. Without objection, it will be made a part of 

the record. 

Mr. PEIREZ. Thank you. The payments industry is extremely 

competitive. MasterCard competes against all forms of payment, including cash and checks, other brands such as Visa, American Express, and Discover, a wide variety of debit networks, as well as 

rapidly growing alternative payment systems, such as PayPal, that 

did not exist a few years ago. We also compete intensely for the 

loyalty of financial institutions, merchants, and cardholders. And 

the result of this competition is that consumers and merchants increasingly prefer to use payment cards for purchases, and there are 

many reasons for this. 

MasterCard cardholders know that they can walk into a store almost anywhere in the world and make a purchase using their card 

with the security that comes with not having to worry about carrying a lot of cash. Our popular advertising campaign says it best: 

‘‘There are some things money can’t buy. For everything else, 

there’s MasterCard.’’ 

Merchants also derive enormous benefits from payment cards. 

Most importantly, cards increase merchant profits because consumers tend to spend more using payment cards. Cards are also 

much cheaper and safer than checks, which most merchants don’t 

even accept anymore or only accept locally. It is, therefore, no surprise that the number of merchant outlets accepting payment cards 

continues to increase. Historically, merchants were the first to recognize the benefits of payment cards when in the 1920’s individual 

merchants began to issue cards to their customers. These programs 

were inefficient and expensive for merchants to operate, but the 

powerful desire on the part of merchants to benefit from payment 

cards created opportunity for others. 

In the 1950’s, Diners Club and American Express both began to 

offer what is known as a three-party model in which a single comVerDate 0ct 09 2002 11:12 Sep 22, 2006 Jkt 029737 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\29737.TXT SJUD4 PsN: CMORC
12

pany issues the cards, contracts with merchants, and operates the 

system itself. Banks then began to offer their own card programs 

which have evolved into the four- party systems known as 

MasterCard and Visa. These four- party systems created even 

greater efficiencies and benefits by bringing together the cardholders and merchants of hundreds and then thousands of banks 

to complete transactions. 

In a four-party system such as MasterCard, card issuance and 

merchant-acquiring functions are performed by financial institutions licensed by MasterCard, not by MasterCard itself. Since the 

inception of these three- and four-party payment systems, merchants have paid a fee called a ‘‘merchant discount’’ in exchange for 

the benefits of card acceptance. These fees are set in an intensely 

competitive merchant acceptance environment, and they cover 

some of the costs and the value the system brings to merchants. 

A substantial portion of the benefit provided to the merchant obviously comes from card-issuing activities. In recognition of this reality, the card issuer is paid an interchange fee in a four-party system. In the United States, MasterCard management sets a default 

interchange fee. Banks are free to use these default fees or to agree 

to a different fee between themselves. Setting default interchange 

fees is a challenging proposition that involves an extremely delicate 

balance. If we set the fees too high, the merchants’ desire and demand for MasterCard acceptance will drop. If we set the fees too 

low, card issuers’ willingness to issue and promote MasterCard 

cards will fall, as will consumer demand for those cards. 

MasterCard management works extremely hard to set interchange 

fees at levels that balance the benefits and costs to both cardholders and merchants. 

Some have sought to challenge the methods by which 

MasterCard and its competitor, Visa, set their respective interchange fees on antitrust grounds. To date, these cases have all 

failed, and the courts have upheld interchange fees as not violating 

antitrust laws. What the plaintiffs appear to really want are Government-mandated price caps at lower levels than what is offered 

today. There is simply no precedent for such a remedy under antitrust law. Such a policy also harms consumers. We have one test 

case of the results of such price caps in Australia which demonstrates that price caps harm consumers and competition. The effect in Australia has been higher annual fees and finance charges 

for consumers, as well as fewer benefits. 

In conclusion, merchants and consumers benefit significantly 

from the use of payment cards. It is my pleasure to discuss the 

topic with you, and I would be pleased to answer any questions you 

may have. 

[The prepared statement of Mr. Peirez appears as a submission 

for the record.] 

Chairman SPECTER. Thank you very much, Mr. Peirez. 

Our next witness is the former Chairman of the Federal Trade 

Commission, Timothy Muris, who served there from 2001 to 2004. 

Previously, he had been in the Office of Management and Budget 

during the Reagan administration. He currently is of counsel to the 

O’Melveny & Meyers firm, where he co-chairs the antitrust practice; a bachelor’s degree from San Diego State and a law degree 

13

from the University of California; a member of the Order of the 

Coif and associate editor of the Law Review there. 

Thank you for being with us today, Mr. Muris, and we look forward to your testimony. 

STATEMENT OF HON. TIMOTHY J. MURIS, FORMER CHAIRMAN, 

FEDERAL TRADE COMMISSION, AND OF COUNSEL, 

O’MELVENY & MEYERS, WASHINGTON, D.C.

Mr. MURIS. Thank you very much for inviting me to this important hearing. Before I begin, I would like to submit my written testimony and a Law Review article I recently wrote about this topic 

for the record. 

Chairman SPECTER. Without objection, both will be made a part 

of the record. 

Mr. MURIS. Thank you. 

As you know, I personally advise Visa on antitrust and consumer 

protection, but the views that I express today are my own. Let me 

make three points. 

The first is that merchants are wrong to analogize interchange 

to the paradigmatic case for antitrust enforcement, cartel price fixing. A cartel is a group of otherwise competing firms that fix their 

prices. When businesses collude, they harm consumers by raising 

prices above the level that would otherwise prevail. Interchange 

has nothing in common with this behavior. Unlike the cartel, a 

four-party payment card system cannot exist without interchange. 

A default fee reduces the cost of negotiating separate fees between 

acquirers and issuers. 

Moreover, for Visa to succeed, merchants need to honor cards 

from each of the thousands of issuers. Knowing that all cards must 

be honored, individual issuers could insist on very high fees. Merchants would then be subject to those fees and would be less willing to accept the network. A default interchange avoids this problem. 

The difference between a cartel and Visa is stark. With cartel 

pricing, an end to the cartel lowers prices, raises output, and increases innovation. The end of interchange will lead to chaos. 

The merchants understand this. They do not want interchange to 

end. Instead, they want lower interchange rates. But this is not an 

antitrust remedy. One of the fundamental maxims of antitrust is 

that the market, not Government, should set prices. Indeed, ‘‘reasonableness’’ is never a defense to price fixing. 

Interchange began with Visa long ago. Bank of America started 

a three-party payment card system in California in the 1950s. Because banks were then prohibited from crossing State lines, the 

bank tried to franchise its system to different States but found few 

takers. It spun off the system in the 1970s. That spin-off, renamed 

Visa, began interchange to coordinate the four parties involved, beginning interchange long before they had any significant market 

share. 

My second point is to discuss how prices are set. Payment card 

systems are an example of a two-sided product connecting two 

groups of consumers. The challenge for any two-sided product is 

bringing both sides on board. Newspapers illustrate how most twosided products set prices. I have today’s Washington Post. In a 

14

business sense, this is a vehicle to bring together readers and advertisers. The readers pay very little. The publishers get their 

money from the advertisers. If newspapers charged us the direct 

cost of supply, they would lose readers given the alternatives. 

Without enough readers, there would not be enough advertisers. 

And, incidentally, in response to Mr. Douglass’ point, if you want 

to talk about market power, I believe that the Washington Post has 

a very large share in the relevant market here in the Washington 

area. 

The economics of attracting two distinct groups of consumers 

drives the pricing. Again, we have readers and advertisers. The 

value of the two-sided product to one group of customers is determined by its attractiveness to the other. The group with the lowcost substitutes—in this case, the readers—gets the better deal. 

For payment cards, the consumer is the king. To compete with 

the two historically dominant forms of payment, cash and check, 

payment card systems are priced to provide value to cardholders. 

The industry has followed this model from its inception. In 1948, 

the Diners Club card was introduced with a merchant discount of 

7 percent. Today, the average discount on American Express is 

about 2.5 percent, while Visa, which is a larger company, charges 

about 2.1 percent. 

Consumers and merchants clearly enjoy the benefits. Walk into 

a McDonald’s or Subway, and you can swipe your card to purchase 

a meal. A few years ago, you could not do this. Nobody made those 

restaurants take the payment cards, but instead they found that 

the payment systems offered value for a price they were willing to 

pay. 

Let me conclude by noting that the attack on interchange, taken 

to its logical connection to end interchange, poses a direct threat 

to the American consumer. I understand the full fury of that consumer when aroused. While Chairman of the FTC, we created the 

National Do Not Call Registry, and I thank all the members here 

for their support. I suspect that many Americans feel as strongly 

about their plastic as they do about their dinner hour. 

Thank you. I will be happy to respond to your questions. 

[The prepared statement of Mr. Muris appears as a submission 

for the record.] 

Chairman SPECTER. Thank you very much, Mr. Muris. 

Our final witness is Mr. Steve Cannon, President and Managing 

Partner of Constantine Cannon; had service on the Senate Judiciary Committee back in the 97th and 98th Congress, where he was 

chief antitrust counsel of the Judiciary Committee. The 98th Congress was the time of my first service in 1981 when Senator Thurmond was Chairman of this Committee. He is also from South 

Carolina, and Mr. Cannon received his undergraduate and law degree at the University of South Carolina. 

Thank you for being with us today, Mr. Cannon, and the floor 

is yours. 

15

STATEMENT OF W. STEPHEN CANNON, PRESIDENT AND MANAGING PARTNER, CONSTANTINE CANNON, WASHINGTON, 

D.C., ON BEHALF OF THE MERCHANTS PAYMENTS COALITION, INC.

Mr. CANNON. Thank you, Mr. Chairman. It is great to be back 

in this room. I must say it feels a little different on this side of the 

dais. 

On behalf of the Merchants Payments Coalition, I am honored to 

be able to present this testimony on an issue of extreme importance, not only to the merchant community but to the millions of 

consumers we serve every day. Merchants Payments Coalition 

members provide virtually every American with a broad array of 

goods and services and employ over 50 million people. 

To answer the question posed by today’s hearing, there are indeed crucial and timely antitrust issues raised by interchange fees. 

Let me be clear and unequivocal. What Visa and MasterCard and 

their member banks do is illegal price fixing, pure and simple. 

While the legal team for the cartel is here today to tell you that 

it may be price fixing but it is not illegal, both the law and common 

sense tell us that they are wrong. 

It is also important to note that other countries around the world 

have begun to figure all of this out and are acting quickly and decisively to end this price fixing. Just 2 days ago, as the Chairman 

referenced, the European Commission conducted a hearing on its 

preliminary finding that the justification for the current interchange system had no factual basis. According to media reports, 

EC Competition Commissioner Neelie Kroes called for the end of 

anticompetitive behavior in the payment card industry or face antitrust action. Last April, she warned that the industry’s paradise 

days may be over. 

You have already heard a lot about Australia this morning. All 

I can say about that is that facts are stubborn things. Interchange 

rates there are currently one- third the rates in the United States, 

and what the card association witnesses have not told you is that, 

in fact, fierce competition has erupted between Australian credit 

card issuers trying to offer lower and lower interest rates to consumers rather than just trying to give you more miles. 

And, by the way, contrary to MasterCard’s official written prediction of a death spiral for credit cards in Australia, credit card 

issuance is up, as is credit card use. In my written testimony, Mr. 

Chairman, I have cited several press articles to this effect from 

Australia, including one from last February that says, and I quote, 

‘‘Australians have never had easier access to a credit card with 

banks undercutting each other in a battle for the consumer’s dollar.’’ That sounds like competition to me. 

You have also heard this morning from both MasterCard and 

Visa that the merchants I represent want price controls. This is not 

a surprising argument since, in fact, Visa and MasterCard are 

themselves privately controlling prices through their cartel and 

have no other reason for anybody else to get involved in the process. As of today, they are very comfortable with imposing a consumer checkout fee on virtually every transaction. Their plea of 

‘‘Let the market decide’’ really means ‘‘Let us continue to privately 

regulate the market among ourselves.’’ They refuse to publicly recVerDate 0ct 09 2002 11:12 Sep 22, 2006 Jkt 029737 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\29737.TXT SJUD4 PsN: CMORC
16

ognize, of course, that all our merchants have asked for is for Congress to look at this problem and potential solutions, not price controls. 

Our friends at the desk here would want you to think that you 

have only a choice, Mr. Chairman, between a cartel and chaos, and 

that is clearly not the case. There is a lot in between those two 

choices. 

Now let me turn to how to remedy this problem. On the question 

of liability for past conduct, that is easy. Only the courts can determine who is liable to whom for past conduct and how much damages should be. But we are not here to talk about litigation this 

morning. What the industry should look like going forward is a 

harder question. There are many possibilities that Congress could 

consider, and I am glad to discuss them or answer any questions 

the Committee might have. 

For the other question which is on everybody’s mind today, which 

is whether the Congress has a role to play, we believe the answer 

is a resounding yes. And, Mr. Chairman, I reference, as you remember, the breakup of the Bell System in 1982 is a very apt analogy. At that point in time, for 14 years, from 1982 to 1996, Congress deferred to a single Federal judge, Hon. Harold Greene, to 

make the vast majority of the most important telecommunications 

policy decisions of that era. I would only add that the arguments 

you have heard this morning that the payment card system is not 

broke so do not fix it is almost identical to what the Committee 

heard from the Bell System 25 years ago and is absolutely wrong. 

I remember when the Bell System warned that using any piece of 

telephone equipment that Western Electric did not make would 

make the entire telephone network come crashing down, not to 

mention that $2 a minute was a very reasonable price for the miracle of long- distance. 

Mr. Chairman, that concludes my remarks. Thank you. I would 

be glad to answer any questions you may have. 

[The prepared statement of Mr. Cannon appears as a submission 

for the record.] 

Chairman SPECTER. Thank you very much for that testimony, 

Mr. Cannon. 

We now turn to the portion of the hearing on questioning by 

members of the panel for 5 minutes each. 

Mr. Peirez, you said that all cases have failed. Was that your testimony? 

Mr. PEIREZ. All the cases challenging interchange have failed, 

yes. 

Chairman SPECTER. Well, isn’t it true that there were recently 

50 cases consolidated in the Eastern District of New York which 

are ongoing and have not failed? 

Mr. PEIREZ. Those cases are pending in the early stages, and we 

will see where those cases go now. My testimony was that, to date, 

all the cases had failed. 

Chairman SPECTER. Well, those cases have not failed, have they? 

Mr. PEIREZ. That is true. They have not failed. 

Chairman SPECTER. Okay. I just want to be sure that there are 

some that have not failed. 

Mr. PEIREZ. There are pending cases, yes. 

17

Chairman SPECTER. Mr. Muris, one of the cases alleged that the 

collective setting of interchange rates by banks that compete with 

each other to issue cards to consumers constitutes illegal price fixing and that there was a substantial overlap between the banks 

that are members of MasterCard and those that are members of 

Visa which precludes competition between the two credit card companies. 

Do those facts, if established, constitute a violation of the antitrust laws, in your opinion? 

Mr. MURIS. No, and let me analogize what is going on here, and 

I think Mr. Cannon’s reference to AT&T really shows this is not 

a simple price-fixing case. 

If you and Senator Leahy practiced law as competitors and you 

did nothing else but agree to fix prices, that would be an antitrust 

violation. If you formed a law firm and you fixed prices, that would 

not be illegal because you had formed a legal joint venture. And 

what is happening here—and the Dagher case I think makes this 

clear—is we have a legal joint venture which has the right to set 

prices. 

What we have here is a business dispute. Mr.— 

Chairman SPECTER. Let me interrupt you, Mr. Muris. You have 

already said it does not constitute a violation. 

Mr. MURIS. Yes. 

Chairman SPECTER. Should it? Should the antitrust laws be 

modified? It sounds to me like pretty anticompetitive practices. 

Mr. MURIS. As you will recall when we met, I learned my antitrust law from Jim Liebler, and Professor Liebler was a strong believer in the market. Underlying antitrust law is a strong belief in 

the market, and the market should set the prices here. Legal joint 

ventures have—as the Supreme Court made clear just this year—

the right to set a price. Obviously you have the right to change the 

antitrust law—but you would be changing it in a fundamental way 

that would be inconsistent with the 116-year history of the Sherman Act. 

Chairman SPECTER. Mr. Floum, according to the briefing materials provided to me, the Justice Department successfully challenged MasterCard and Visa rules which prohibited their member 

banks from issuing American Express and Discover cards. Is that 

true? 

Mr. FLOUM. That is correct, Mr. Chairman. 

Chairman SPECTER. Isn’t that pretty heavy-handed for that kind 

of market pressure to be brought on banks so that they do not 

issue other credit cards from companies as prominent as American 

Express and Discover? 

Mr. FLOUM. At the time we thought not, Mr. Chairman, and the 

reason is that we believe that what our system does is promote vigorous, what we call ‘‘intra-system competition,’’ competition between the banks. Now, I know that— 

Chairman SPECTER. You thought that was not a violation, but 

the Department of Justice disagreed with you. 

Mr. FLOUM. That is correct, Mr. Chairman. We did petition to 

the Supreme Court for certiorari, which was denied, and we, of 

course, rescinded that rule in accordance with the Court decision. 

18

Chairman SPECTER. Mr. Cannon, does that sound like an antitrust violation to you to have member banks prohibited from 

issuing other companies’ credit cards? 

Mr. CANNON. Well, it does and it is. And, in fact, that was a 34-

day trial before a Federal judge in New York. It went up through 

the Second Circuit. The Second Circuit found that, in fact, there 

was market power that had been exercised, and that is now the 

law of the land. And I am glad to say that at this point Visa was 

required to abrogate those rules and, therefore, they had to—and 

now competition is beginning to flourish on that side as well. 

But if I can say one thing about Mr. Muris’ response on saying 

this is not a simple price-fixing case, this is a simple price-fixing 

case, and everyone is doing a lot to try to make you think that it 

is really complicated. The problem is that it involves two players 

in this industry that control 80 percent of the market. So it is price 

fixing. It just happens to be done by two people with a large market share. 

Mr. MURIS. Could I respond to that? No one who raises AT&T 

as the appropriate remedy I think can credibly claim this is a simple price-fixing case. The unraveling of AT&T and the extraordinary efforts of Judge Greene, the 1996 Telecommunications Act, 

and the efforts that are needed now to rewrite that law show that 

this issue is very different than the simple price-fixing case of two 

lawyers in town—the analogy he is making is that two otherwise 

competing lawyers fixed prices. The remedy is simple: just tell 

them not to fix prices. You do not make an analogy to AT&T and 

get the Congress involved and oversight for dozens of years. 

Mr. CANNON. Senator, that actually makes my point precisely, 

which is this is an industry—it is an industry that needs attention, 

and I would posit that everybody in Congress thought that for the 

period of 14 years, it would have been a lot better if Congress was 

making competition policy and telecommunications policy as opposed to Judge Greene, not to not give Judge Greene his due deference, but that is the position that industry and everybody on the 

Hill found themselves in. 

Chairman SPECTER. The red light went on during that lively exchange, which I did not want to interrupt. 

Senator Leahy? 

Senator LEAHY. No objection here, Mr. Chairman. I thought it 

was helpful. 

Ms. Miller, let me ask you, we have heard some say, well, we just 

do not accept credit cards, and if some other store does not want 

to pay these interchange fees, well, they should not accept credit 

cards. Tell me how practical that would be in Elmore. 

Ms. MILLER. It would not be practical. More and more of my customers come in, they are going by on a little bicycle tour. I mean, 

they are not carrying cash in their pockets. They have got a card. 

They come in to get a bottle of water. I make 30 cents on a bottle 

of water. I have got to swipe their card. It costs me 20 cents plus 

the transaction fee. So in some instances, like candy bars, they are 

on sale three for a dollar. Somebody buys candy bar, I might as 

well just give them the candy bar instead of swiping the card. But 

it is a matter of survival. It is what customers expect. It is what 

I need to do to have my business to survive. 

19

If a customer is in my store, just because he is using plastic, he 

is not going to buy more. They are at the deli. If you were going 

to buy one sandwich, you are not going to buy two. If you are 

camping at the Elmore State Park, you need a fishing license, you 

are not going to buy two. But the expectation is there. They are 

in Elmore. I appreciate their business and I want to take care of 

them. 

Senator LEAHY. Well, in Mr. Douglass’s testimony, he says that—

I think I am quoting this correctly, Mr. Douglass—’’Congress does 

not yet have enough information about these fees to come up with 

a solution to this problem.’’ Well, we are holding this hearing as 

the first step to get that information. What further or additional 

information do you think we should have? 

Ms. MILLER. I do not have all the answers, but I know that you 

people have the capability to look into this issue. And it is very 

huge. It is very real. It is wonderful that the dialogue has started. 

Even if I had access to the rules on the Internet, I do not have time 

to sit down and read 1,300 pages’ worth of information. I probably 

would not understand them, and I could not print them off so 

somebody could— 

Senator LEAHY. What if you had the interchange fees appear on 

the customer’s bill? Would that be helpful? 

Ms. MILLER. According to the bank that I do business with, that 

is not legal for me to do. I cannot pass that on to the consumer. 

Senator LEAHY. Okay. Well, Mr. Floum, Mr. Peirez, why not just 

have the interchange fees associated with the credit card transactions appear on the bill? Why shouldn’t consumers know what it 

is actually costing to get the free airline miles, which may or may 

not be available, or the lower interest rate or the annual fee rate? 

I mean, shouldn’t they know what interchange fees are ultimately 

costing? 

Mr. FLOUM. Mr. Chairman, Senator Leahy, I think it is important to understand that the interchange fees are akin to wholesale 

rates. They are not fees which are paid by the merchant or paid 

by the cardholder. They are fees that are paid by the merchant 

bank— 

Senator LEAHY. But why not let us know? I would be interested 

in knowing. And all this stuff is computerized. It would be very 

easy to do. 

Mr. FLOUM. The feel schedules are available online, Senator, but 

it would be like going to the Macy’s store in Pentagon City and expecting to see the wholesale charges for the various items disclosed 

at the store. 

Senator LEAHY. No. Let’s not get off the subject. Mr. Peirez, why 

not do it? 

Mr. PEIREZ. Mr. Leahy, Ms. Miller is perfectly allowed under our 

rules to post that on the receipt. We do not restrict that. She 

should discuss it with her bank. 

Senator LEAHY. How do you get it? 

Mr. PEIREZ. She could ask her bank for it. They are not prohibited from providing it. She can also search on the Internet. They 

are there. 

Senator LEAHY. Ms. Miller? 

20

Ms. MILLER. Just a little example of something that happened in 

my store the other day. We are still very small. We run in-house 

charge accounts. Some customers come in, they pay by the week. 

I had a woman in. It is raspberry season. She bought $108 worth 

of raspberries. She is going to go home. She wants to make raspberry jam. She goes to get her wallet, her pocketbook, ‘‘Oh, I forgot 

it, but I have got my card in the car and I want to pay my slip. 

Would you rather have me go get my card and swipe it or would 

you like me to pay cash tomorrow?’’ I said, ‘‘Have a good night, 

Alex. Go home, make your jam, come back and pay me cash tomorrow.’’ That is just what is happening. 

Senator LEAHY. I still do not understand why we cannot get 

these fees—I mean, you are able to do everything else, including 

inundate us with free credit cards or offers of free credit cards. My 

5-month-old grandson, he could get one. My former chief of staff’s 

dog could get one. You sure are willing to spend money on that. 

You ought to be able to open this. 

Let me discuss one other area, the issue of piracy. There is a 

website in Russia called ‘‘allofmp3.’’ It sells copyrighted material 

but without the permission of the copyright owners. Customers are 

here in the United States. The website is in English. It features 

American music, none of which has been licensed. So they are selling music, in effect, illegally, but they accept Visa and MasterCard. 

In fact, those are the only two credit cards that are on the site. It 

is such a degree of concern that it may be one of the reasons why 

Russia has failed to get into the World Trade Organization. They 

will not shut it down. 

Now, why don’t Visa and MasterCard just pull the plug on that, 

agree to suspend their services to allofmp3? You do this on some 

child pornography sites. Why not do it on allofmp3 in Russia? 

Mr. FLOUM. We intend to do so, Senator Leahy. Visa deplores 

any illegal use of its cards, and as you mentioned, whether the 

issue is Internet pornography, online pharmaceuticals, illegal 

downloading of music, our rules expressly forbid the unlawful use 

of the card. 

Now, it gets more complicated when you have different jurisdictions involved, and we are trying to enforce that in Russia in the 

case that you specifically mentioned, and we hope to be able to 

shut down that merchant very soon. 

Senator LEAHY. Mr. Peirez? 

Mr. PEIREZ. We prohibit and deplore the use of our system for 

any illegal activities, including this activity. 

Senator LEAHY. Are you going to shut down this Russian site? 

Mr. PEIREZ. Yes, we are working on it. 

Senator LEAHY. Okay. 

Mr. CANNON. Senator, may I add one thing about your question 

about the receipt? We believe that the rules of Visa and 

MasterCard actually prohibit merchants from doing exactly that, 

which raises the entire question about all of the rules that are hundreds and hundreds of pages long that the associations essentially 

keep hidden from the merchants. They have told us time and time 

again, they have been asked time and time again to make rules 

available, and now, frankly, even this Committee is not going to be 

able to get them unless they have a change of heart. They anVerDate 0ct 09 2002 11:12 Sep 22, 2006 Jkt 029737 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\29737.TXT SJUD4 PsN: CMORC
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nounced this week they would make them available online to merchants but, in fact, would exclude things dealing with interchange 

fees, of all things. 

So it would be very helpful if the merchants could actually see 

these rules. 

Chairman SPECTER. Thank you, Senator Leahy. 

Senator Kyl? 

Senator KYL. Thank you, Mr. Chairman, and I appreciate you 

holding this hearing. I confess that this is a subject that is very 

confusing, I think, to a lot of folks, including me, and I think it is 

wise to at least try to understand it better. And for that reason I 

would like to go back to a more basic or fundamental point. 

People have told me that the reason for concern here is that fees 

have gone up rapidly, I gather much more rapidly than other costof-living increases. And it has created a suspicion that there must 

be some reason for this other than market factors, like collusion, 

for example. And, of course, there are a series of lawsuits that have 

been discussed here that attempt to reach that. 

The question, the fundamental question I have, is: What market 

protections are in place to ensure that, at least over time, pricing 

adjustments are made to truly reflect the state of competition, the 

value of these interchanges, the value of the product, in effect? 

How does the market work? Is there a place where it is not working? And if not, why? 

I pose this to all of you, and I think it would be good to get both 

points of view here. 

Mr. FLOUM. Senator, I would be happy to try to respond. We call 

it a two-sided market, so when you ask the question about the marketplace, we look at both merchant demand and cardholder demand. And unless you have enough cardholders, merchants will not 

be interested in accepting the card. Unless there are enough merchants that accept it, cardholders will not use it. So we need to try 

to balance so that the product is attractive to both. 

If interchange rates are too high, merchants will not use the 

product. We heard the example of raspberries with cash the next 

day. It demonstrates that merchants do have a choice to use the 

card products or to use other payment devices. 

On the card-issuing side, if cardholders are asked to pay too 

much in terms of annual fees, interest rates, other devices that financial institutions use to recoup their costs on the cardholder 

side, then cardholders will not be interested. 

So I think there is an inherent balance that is built into this twosided market. 

Ms. MILLER. Could I just say something? 

Senator KYL. Yes, ma’am, go ahead. 

Ms. MILLER. The point that I was trying to make was I am small, 

that was a local customer. She had no idea, until we started talking about what fees were like, what I had to deal with. She felt 

bad. She apologized to me for swiping her card in my store. So, yes, 

I did have the option in that situation. 

But nine times out of ten, that option is not there. You are busy. 

Your store is full of people. You are scooping ice cream cones. You 

are making sandwiches. You are pumping gas. You are just doing 

business, and it is costing us way too much. 

22

Thank you. 

Senator KYL. Mr. Cannon? 

Mr. CANNON. Senator, when competitors get together and are allowed to fix the price of what they are going to charge someone 

else, that is fundamentally not the free market, and that is exactly 

what we have here today. And it does not matter whether it is twosided markets or a four- party system or two times four. It makes 

no difference. We have to keep this simple and keep focused on exactly what is going on today. It is not complicated. It is price fixing. 

It is in the open. It is not secret. It is not collusive. The question 

is, Is it a violation of the law? And it truly is. 

So in a situation where people are involved in an antitrust violation and they are then deemed to be in violation of the law, they 

have to stop doing that illegal activity. So the question is: If you 

cannot fix prices, what else can you do? Every other business in the 

United States manages to do their business without fixing prices, 

and surely Visa and MasterCard could as well. 

Senator KYL. To you or anyone else, Mr. Muris maybe, there is 

a legal remedy here. There are plenty of lawsuits that are resolving 

this, and it just takes a couple of them to establish the law in this 

area. Is that the preferable remedy here to any kind of Congressional action? 

Mr. MURIS. Obviously, the issue is in court, and if they think it 

is an antitrust violation, they have that forum. 

To respond to the basic questions, I have one of every kind of 

card, and these are Discover and American Express. From the 

standpoint of merchants, they are identical because the merchants 

pay a merchant discount, as they do with Visa and MasterCard. 

But because they are not organized as joint ventures, they are not 

part of these lawsuits, even though they do the exact same thing. 

They are organized as individual companies in the way that 

MasterCard has now just recently organized. 

The reason that Visa and MasterCard are organized the way 

they are is a historical anomaly. As I mentioned in my testimony, 

when Visa began and MasterCard began, the law prohibited interstate banking. So if Bank of America in California, had this great 

idea, if could not take the idea to America by using Bank of America across the country. It had to form this cooperative. 

The last point is, in a legal joint venture, just as in the law firm 

analogy I said where it is completely legal to fix prices, interchange 

fees are used to fuel the enormous competition between the thousands of issuers. Interchange fees result in enormous benefits. I 

have a Cap One miles card. I have a MasterCard that gets me cash 

back. It is double cash back at gas stations, which is particularly 

valuable at the moment. These fees result in benefits to consumers. 

I get the float and the convenience. I do not have to carry cash. 

Cards are enormously beneficial, and it is why this is one of the 

great innovations of the last century, this payment card system, 

and it costs billions of dollars to put it to where it is today. 

Mr. CANNON. Senator, if I may respond to Mr. Muris, he has 

made my point for me. These miles and other benefits and things, 

ask yourself, Who pays for these? And the answer is you pay for 

them. Not only you pay for them as a credit card customer; every 

single customer of every single retailer and every single merchant 

23

pays for it as well, because it is pretty clear and undisputed that 

that price gets baked into the price of what we pay every day for 

everything. 

So when you think you are getting a great deal for your miles, 

you really ought to ask yourself, gee, if I am making that much, 

how much is somebody else—how much is going out of my other 

pocket? 

Mr. MURIS. But, Senator, and my good friend Steve—we have 

been friends for a long time—his merchants, if they want, could say 

I will give you a better deal if you pay me cash. They could discount for cash. It is perfectly legal. Almost none of them do. The 

gas stations tried a long time ago for a while, and they do not now 

because it is less convenient and because many consumers would 

resent it. 

We have a system where the consumer is king, and the consumers like their plastic. 

Chairman SPECTER. I have a couple of hands up at the end of 

your questioning. Mr. Douglass, proceed. 

Mr. DOUGLASS. Mr. Chairman, thank you for the chance to do 

this. The difference between American Express and Discover and 

Visa and MasterCard is Visa and MasterCard have 80 percent of 

the market. They are just the dominant leader. I mean, they control the market. And back to Senator Leahy’s question about can 

we post the price, the problem is we only get the average price of 

what they are charging us. We cannot tell what they are charging 

us for one of these reward cards when they swipe that card in our 

dispensers at the pump. That is a different rate than if they have 

a non-reward card. So they have all these different rates, and we 

get an average. So we would have to have a computer to determine 

whether they are using a PIN number or whether they are using 

a remote swiping device. So it is very complicated. 

And back to the point that the counsel here has a card that gives 

him double the money back at his pump, we pay for that at the 

pump. It takes 50 percent of our gross margin at the pump to pay 

that credit card charge for that particular refund. 

Chairman SPECTER. Mr. Cannon, you had your hand up for a response to Senator Kyl’s last question. 

Mr. CANNON. I do, Senator. Mr. Muris, responding to the other 

question, saying, Gee, the rules say you can discount for cash, well, 

our merchants, the impression or understanding they have is you 

cannot do that unless you are willing to post a cash price and a 

credit price on every single item in that store. 

Now, I will tell you, what would be great, what might end this 

argument, this debate, is if we could see the rules. It would be a 

great thing. But, unfortunately, that has not been the case, and the 

merchants are given very thin documents, very short summaries of 

things to be able to say, oh, here is what you have to do. 

Now, I will tell you, if a merchant violates the rule, they are the 

first to tell you very quickly. But, gee, having a copy of the rules 

to begin with is a much harder thing. 

Chairman SPECTER. Mr. Peirez, you had your hand up in response, again, to Senator Kyl’s question? 

Mr. PEIREZ. Thank you, Mr. Chairman. I actually wanted— 

24

Chairman SPECTER. Senator Kyl may turn out to have a 15-

minute round here. 

[Laughter.] 

Mr. PEIREZ. Thank you, Mr. Chairman. I actually wanted to respond to a couple of points. 

First of all, all of the MasterCard rules that apply to the merchant side of the business are available in their entirety online, on 

our website, mastercardmerchant.com, including our discounting 

for cash rule, which says nothing about posting two separate 

prices. We have heard that allegation before. I can tell you right 

here right now, if a merchant wants a sign at the cash register saying a discount of blank is afforded for the use of cash, our rules 

do not prohibit that, and the applicable rules are available to the 

merchants. 

Second, I would like to respond to what is a convenient shorthand for people when they try to refer to this alleged market power 

by saying there is this 80-percent figure. MasterCard and Visa are 

fierce competitors. MasterCard is currently a public company in 

majority public hands, with all voting stock in hands independent 

of the financial institutions that participate in our system. And we 

are simply not an overlap or a proxy for our competitor Visa. And 

to lump us together like that, is inorrect. Even the Court in the Department of Justice case that you mentioned, Mr. Chairman, has 

recently found that MasterCard alone does not have market power. 

And so it is simply untrue. And when MasterCard sets its interchange rates, we do so as an independent public company today. 

We believe the way we did it in the past was justifiable, as it was 

upheld in the NaBanco decision and other court cases. 

So thank you for the time. 

Chairman SPECTER. We had gone to Senator Kyl before Senator 

Durbin, although Senator Durbin was here earlier, because of the 

rule of alternating, but we will await Senator Durbin’s return. I 

know he had other commitments, but we would like to—we will 

keep going a while longer here to give him a chance to return. 

Mr. Douglass, staff advises me that you are not permitted to 

have a surcharge for people who use credit cards. Would you like 

to be able to have the freedom, if you chose, to have a surcharge 

for people who use MasterCard or Visa? 

Mr. DOUGLASS. Mr. Chairman, no, I would not like to be able to 

have a surcharge. That would just drive the customers off. People 

really have been sold on plastic, and it is a real convenience, and 

we are on that system. 

The dilemma we have is that the charges just keep escalating. 

As I say, my costs have gone up 33 percent this year because of 

the escalating price of fuel, primarily. 

Chairman SPECTER. Is it true, Mr. Peirez, that there cannot be 

a surcharge? 

Mr. PEIREZ. We do not allow surcharging. 

Chairman SPECTER. Well, why can you get a discount for cash, 

but you cannot allow a surcharge? Just six of one and half a dozen 

of another. 

Mr. PEIREZ. It economically should be the same equivalent to a 

merchant that is looking to drive people to cash. However, we do 

not like having people using our cards feel that they are being disVerDate 0ct 09 2002 11:12 Sep 22, 2006 Jkt 029737 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\29737.TXT SJUD4 PsN: CMORC
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criminated against. It is a rule, however, that we continue to look 

at. We do allow surcharging in Europe and in Australia today. The 

U.S. is our largest and most important market. We tend to be a 

little slower to move here. 

Chairman SPECTER. I am glad to hear that you are looking at it 

because it is exactly the same thing. 

Mr. Cannon, MasterCard and Visa have made some structural 

changes here. They have transferred control of operations from 

member banks to public stockholders. Member banks can still have 

a minority interest, but it is nonvoting. MasterCard has made a 

change. Visa has created a Committee composed exclusively of 

independent members of the board of directors, not member banks, 

which make all the decisions regarding interchange fees. Have 

these changes eliminated the controls so that there is not a violation of antitrust laws under existing law? 

Mr. CANNON. Yes, sir, it is. What they are trying to do is simply 

promote a little form over substance. It is very clear—and I devote 

about two pages in my written testimony to this, Senator. Yes, it 

does not make a difference. The activity that is going on is still unlawful and should be stopped. 

Chairman SPECTER. Well, why is it unlawful if they have structured it so that the banks do not have control over the fee setting? 

Mr. CANNON. Well, Senator, in fact, if you—and I will be glad to 

submit this for the record. If you look at the S–1, which is the registration statement that MasterCard filed, it is very educational on 

this point, and it says clearly and unambiguously that the banks 

are—the banks still, by the way, hold 44 percent of the stock of 

MasterCard, the new company. And, in fact, it says, ‘‘Our success 

or failure will still be dependent upon our customers. And who are 

our customers? Our customers are banks.’’ 

And so I can tell you, there is every incentive for this activity to 

continue regardless of the form, and the fact that MasterCard now 

says it has an independent board making this decision, what is the 

definition of ‘‘independent’’? I think everyone in business wants to 

make sure that they bring as much to the bottom line as they can, 

and that is exactly what will still happen. 

Chairman SPECTER. Mr. Peirez says that all of the rules of his 

company are publicly known. Is that true, too, with you, Mr. 

Floum, with your company? 

Mr. FLOUM. It is, Mr. Chairman. 

Chairman SPECTER. Well, where is the discrepancy? 

Mr. CANNON. I have not seen them. I would love to see them. 

And my understanding, Senator, was that Visa— 

Chairman SPECTER. Don’t you have a website, Mr. Cannon? 

Mr. CANNON. We do. We do. But my understanding was that 

Visa was going to announce this week— 

Chairman SPECTER. But they say you can look on their website 

and find out. This is a pretty simple question of fact. 

Mr. CANNON. I do not think it is there, Senator. I was told that 

Visa was going to announce this week it was going to make their 

rules available; however, they were going to be accessible online. 

They could not be printed off. And, more importantly, if you are a 

merchant and getting these rules like that, you had to sign a nonVerDate 0ct 09 2002 11:12 Sep 22, 2006 Jkt 029737 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\29737.TXT SJUD4 PsN: CMORC
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disclosure agreement that you could not share them with anybody 

else. That does not seem like full— 

Chairman SPECTER. Is that true, Mr. Floum, a non- disclosure 

agreement? 

Mr. FLOUM. That is correct, Mr. Chairman. Our rules— 

Chairman SPECTER. Why? 

Mr. FLOUM. Our rules govern the operation of our 14,000 member banks. They address those banks and what those banks are 

supposed to do to participate in the system. 

Chairman SPECTER. Could they disclose them to the Senate Judiciary Committee? 

Mr. FLOUM. Yes, of course, and we will be happy to make those 

available. However, the rules, you need to understand— 

Chairman SPECTER. Make them available to the Committee. Mr. 

Peirez, we can show them then to Mr. Cannon. 

Mr. FLOUM. We will, Mr. Chairman. 

Chairman SPECTER. Senator Leahy? 

Senator LEAHY. Mr. Chairman, your last question was the only 

question I was going to ask. I like the answer. I have no further 

questions. 

Chairman SPECTER. What is the projection as to Senator Durbin’s return? 

[Pause.] 

Chairman SPECTER. Senator Kyl, do you have any further questions? 

Senator KYL. No, Mr. Chairman. 

Chairman SPECTER. Senator Durbin will be submitting questions 

for the record. Thank you very much, Ms. Miller, Mr. Douglass, Mr. 

Floum, Mr. Peirez, Mr. Muris, and Mr. Cannon. This is a very important subject, and I think that we have learned a good bit about 

it, notwithstanding its complexity. 

That concludes our hearing. 

[Whereupon, at 10:54 a.m., the Committee was adjourned.] 

[Questions and answers and submissions for the record follow.] 

[Additional material is being retained in the Committee files.]

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