I have decided to publish a letter that I sent to Senator Durbin last Thursday, June 3rd, 2010. I am passionate about building more exposure around this issue.
June 3, 2010
Senator Richard Durbin
309 Senate Hart Office Building
Washington, DC 20510
Dear Senator Durbin,
I'm writing you as a long time advocate for the poor and as a business owner of a debit card service for the under-banked. The mission of my business is to provide millions of Americans access to debit cards with transparent low pricing and services that help our users budget, build credit, buy affordable healthcare and participate in the U.S. economy in a way that the rest of us take for granted. I started the business when no one believed it in, seven years ago, after seeing and hearing of the indignity and hardship caused the 80 million Americans who are left out of the banking system.
With that background, I am gravely concerned about the potential unintended consequences of the "Durbin Amendment" to the Senate financial reform bill that just passed and is going into conference committee with the House next week.
Let me say from the outset, that I have no stake or interest in the politics of regulating large banks, or the various lobbying efforts on their behalf, or on behalf of large retailers who want to see interchange fees reduced. However, I am extremely concerned about the potential impact of the amendment, if left unmodified, on the ability of community banks, credit unions or specialist providers to the under-banked to provide card services at affordable rates. That in turn would hurt the poor and the underserved by either raising fees or limiting the availability of this vital service. This would have a grotesquely unfair impact on the most vulnerable and the most heavily hit consumers, including minorities. I would be compelled to fight this publicly and actively.
On May 27, the heads of the Independent Community Bankers Association and the Credit Union National Association wrote you a letter that greatly alarmed me. Their logic is that the carve-out in the amendment for financial institutions with less than $10 billion in assets, as currently written, would not work, because:
1. The card issuers, Visa and MasterCard, may not have the means, or the willingness, to make the distinction between institutions in processing payments and sharing interchange revenue
2. Merchants, who currently accept a blended rate of fees could - and would have an incentive - simply refuse to honor the cards of smaller institutions unless the fees are reduced and favor their own cards, often issued together with larger banks
3. The larger debit card providers would raise fees on and further cut services to the poor at the worst possible time, while there is no guarantee that the savings to retailers would be passed on.
4. Smaller institutions currently using large banks for interchange transactions would have to scurry to find new clearing banks not subject to the amendment - and some might be contractually obligated to stay with a larger bank for a fixed period.
Therefore it is absolutely imperative that the amendment either be amended significantly to legally protect the smaller community and cooperative institutions or be scrapped altogether.
I have read your letter to the CEO's of Visa and MasterCard of May 27. My first reaction was that you are being very tough with a partner of ours, Visa, who have been extremely constructive with my company in providing debit cards to the poor, and contributed not one iota to the crisis the overall bill is trying to address. My second reaction was that while your clarification of the carve-out is welcome you are basically threatening litigation under restraint of trade or antitrust laws rather than putting an affirmative obligation on, and transition period for those companies, into the law itself. This simply is not going to work on a practical basis, as it could be years of litigation before the industry gets relief, and doesn't even begin to address the risk that large retailers refuse to honor cards with current interchange fees.
At a minimum, I urge you -- if you are to press ahead with the amendment in conference -- to ensure that the carve-out for institutions with less than $10 billion in assets have real teeth in it. To do this it needs to:
• Write the law to require that the current policies of non-discrimination based on card issuer be retained irrespective of the interchange revenue rates
• Legally require Visa and MasterCard to implement the carve-out but also give them the time to implement the intent of the carve-out
• Bar the major banks as well as the card exchanges from using their market power to impose lower interchange fees on community and cooperative banks and services
• Bar retailers from discriminating against card issuers subject to the carve out at their current interchange rates
• Have a transition period to allow the issuers, the exchanges, and small institutions to transition.
If you were able to make each and every one of these changes to the amendment, then the worst damage might be avoided. The major banks would either raise fees or exit the business, leaving it to smaller institutions to pick up those customers. This is not in-and-of-itself a bad thing -- I am sympathetic to causes like the Move Your Money Campaign and believe that smaller institutions often care more about their members and are safer for the economy. However, that is not what will happen if your amendment is not itself amended.
I simply cannot believe that you are removing what is effectively a commercial business-to-business subsidy for a payment system that benefits the poor, and leaving intact the same system as used by the rich -- who have access to credit cards. I simply cannot believe that in this era of excessive debt you are favoring credit cards over debit cards. I am a small business owner and entrepreneur -- no small business has ever gone bankrupt because of interchange -- but the poor can't get credit cards and the carve-out won't work unless you regulate retail as well as the exchange system. In other words, the poor -- for whom I helped create this industry, still in its infancy -- will suffer from your good intentions.
I was recently briefed by a private equity banker involved in purchasing banks from the FDIC. This banker told me that one of the unintended consequences of the home mortgage provisions of the financial bail out package was that some institutions actually have an incentive to force foreclosures because the present value of government guarantees is actually greater than the income that can be earned from arranging a long-term work-out of loans. This from my party, the Democratic Party, which is here to help the middle class and the poor. We have to avoid a similar unintended consequence against the underserved communities and the institutions that serve them.
I urge you to give me your personal assurance that you will either strengthen legislatively your carve-out, or drop the amendment altogether. I am prepared to meet with you and the legislative conferees to find creative ways to avoid what could be a hugely unfair outcome to the most vulnerable of your constituents.