The fight over debit card swipe fees got a few notches hotter this week when Senator Dick Durbin sent an open letter to Jamie Dimon, CEO of Chase bank. Dimon is leading a lobbying effort to kill Durbin’s amendment limiting swipe fees, calling it “idiotic.”
Durbin struck back with a letter blasting Dimon’s arguments that new regulations could force banks to abolish services like free checking accounts.
“There is no need for you to threaten your customers with higher fees when you and your bank are already making money hand-over-fist,” Durbin said in the letter, pointing out that Dimon received $20.8 million in salary and bonuses in 2010, and Chase made $17.4 billion in profit.
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Durbin’s letter was a defense of his amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act. It limits debit interchange fees that are set by card networks Visa and MasterCard from their current average of 44 cents to a maximum of 12 cents, but allows banks to set their own prices if they choose.
In a statement to Chase shareholders, Dimon called the Durbin amendment “counterproductive,” “price fixing at its worst.”
In his letter, Durbin retaliated by refuting Dimon’s major arguments against the cap. Dimon told Chase shareholders that the amendment “is an example of a policy that has little basis in fact or analysis.”
Actually, the rules are based on years of research by Congress and academics, Durbin said, which have found that Visa and MasterCard have a duopoly over the interchange market, allowing them to set high fees and pass them onto banks, while giving merchants and consumers no choice.
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The result, Durbin says: a system that encourages fraud, and encourages banks to operate inefficiently.
“Your industry is used to getting its way with many members of Congress and with your regulators, and my amendment and the Federal Reserve’s draft regulations were not written the way you wanted,” Durbin wrote. “The American people deserve to know the real story about the interchange fee system and the ways that banks in general—and Chase in particular—have abused that system.”
The Fed’s rules for implementing the Durbin amendment were scheduled to take effect this month. But after receiving a mountain of mail on the subject, the agency informed Congress it won’t be able to weigh all the comments in time to meet the deadline. A new proposal is expected sometime this summer.
Image: Center for American Progress Action Fund, via Flickr.com