TCF National Bank v. Ben S. Bernanke, et al. - Law Offices of David ...

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Case 4:10-cv-04149-LLP Document 124 Filed 03/11/11 Page 8 of 14 PageID #: 1009interchange fees which have harmed merchants and in turn consumers through highermerchandise prices. Indeed, the rapid increase of debit card interchange fees in the past decadedemonstrates a significant market failure.Consumers have significant concerns about the problem of escalating debit cardinterchange fees. In 2009, interchange fees alone cost merchants and consumers an estimated$48 billion. Hearing on Interchange Fees Before the Sen. Subcomm. on Fin. Services and Gen.Government, 111th Cong. (June 16, 2010) (testimony of Edmund Mierzwinski). Those fees haveincreased three-fold from $16 billion in 2001. 6These fees have a disproportionately harmfuleffect on the 25 percent of the population that is unbanked and other consumers that pay by cashand checks, since those consumers never receive the benefits of any card rewards programs thatare funded by interchange fees. Yet while the under and unbanked Americans receive no benefitfrom these programs, they pay in excess of $1 billion annually to subsidize those regressiverewards. Hearing on Interchange Fees Before the Sen. Subcomm. on Fin. Services and Gen.Government, 111th Cong. (June 16, 2010) . The Hispanic Institute has reported that the bottom50 percent of income earners pay at least $669 million more in higher prices to subsidize at least$354 million in payment card rewards. 7 A recent study by the Federal Reserve Bank of Bostondemonstrates that interchange fees are a regressive penalty on the unbanked with each credit cardusing household receiving $1,133 from cash users every year. 86 See National Retail Federation, Credit Card Interchange Fees (2009), available athttp://www.nrf.com/modules.php?name=Pages&sp_id=838.7 The Hispanic Institute, Trickle-Up Wealth Transfer: Cross-Subsidization of Consumers in thePayment Card Market, November 2009.8 Scott Schuh, Oz Shy, and Joanna Stavins, Who Gains and Who Loses From Credit CardPayments? Theory and Collaborations, Federal Reserve Bank of Boston Public Policy4
Case 4:10-cv-04149-LLP Document 124 Filed 03/11/11 Page 9 of 14 PageID #: 1010Interchange fees were established to compensate the card-issuers for costs such asinsurance, fraud, risk of loss, float and processing. Yet, while all these costs have decreased inthe past 15 years, interchange fees have continued to increase (over 20 percent in the past fewyears, even though all the costs of card processing and issuance have fallen). Debit card fees onInterlink, Visa’s debit network, increased over 30 percent in 2009 alone. The divergencebetween lower costs and higher fees has grown to the point where card networks no longer evenattempt to justify interchange as a method for recovery of the cost of processing transactions.As problematic, the current debit card interchange fee system provides much greaterincentives for financial institutions to issue and promote signature-based debit cards. Signaturebasedcards are far less safe from fraud since they do not require the use of a personalidentification number (“PIN”) and the debit from the account is not instantaneous. Signaturebasedcards have seven and a half times the rate of fraud as PIN-based cards. 75 Fed. Reg.81740-41. Yet because the networks and issuers of signature based-debit cards are able toexercise their market power, they have levied higher interchange fees. See In re Payment CardInterchange Fee and Merchant Discount Antitrust Litigation, Case No. 1:05-md-01720(E.D.N.Y. 2005) (A class of merchants have alleged in an antitrust suit against Visa, MasterCardand numerous major card issuing banks, that the setting of current debit card interchange feesviolate the antitrust laws.). In addition, issuers attempt to force consumers to use these cardseither by providing rewards or assessing surcharges on PIN debit transactions. A system thatpromotes the less secure and more costly product for consumers makes no economic sense and isa sign of a broken market.Discussion Paper No. 10-3 (August 2010) (while this study is demonstrative of credit cards, asimilar dynamic exists for debit cards).5
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