>> good morning. this hearing will come to order. american consumers today are rightly worried about inflation and rising prices for the goods they buy. today we're going to talk about a hidden fee that fuels the fires of inflation across america every day. what they may not know is this swipe fee is contributing to the problem of inflation. when swipe fees on credit and debit cards go up, as they recently did, it increases inflation. consumers ultimately pay the price. ironically, this journey for me started in this very room 16 years ago. arlen specter was a chairman at the senate judiciary. he called the hearing on swipe and interchange fees. i attended because i was not familiar with those terms. i heard for the first time what a swipe fee was. the fact that, when i used my debit and credit card, the swipe fee was being charged to the retailer that i was ultimately paying. and then, i learned there was virtually no negotiation of those fees. retailers were at the mercy of the credit cards and banks in terms of what those fees would be. there was no competition because we have a duopoly here, well represented at this table, and that created a situation where the market forces do not work. they are not supposed to work. they are not designed to work. what has happened in america, we all know. the statistics on the amount of americans paying with plastic tell the story. these are from 2020. i'm sure after the pandemic and our change in lifestyle, they are even greater. the number of 2020 transactions involving debit cards, 86 billion. the amount involving credit cards, 41 billion. between the two, credit and debit cards, 2020, 127 billion transactions in america. how are we doing with cash transactions? 32.8 billion. how about the use of a check? 5 billion. we are becoming a nation, maybe even a world, that pays with plastic. and today we are going to ask a few questions about how those payments are made, and the charges imposed. this committee held a hearing with witnesses with visa mastercard 16 years ago to discuss competitive fees. we are back. here's what i learned. visa and mastercard control about 80% of the current credit card market. they have established a system of fees and rules that apply to every transaction of the billions i just mentioned, involving cards used by thousands of banks. each time a credit or debit card is used, visa and mastercard charge fees that take a cut out of the transaction. you do not see it at a check at the restaurant. it is there. some of that cut they keep themselves, most of it is given to the bank that issued the card. the fee that visa and mastercard require is called an interchange fee. it is usually charged as a percentage of the transaction, plus a flat fee. for example, 2%, plus $.10 per transaction. that means when a card transaction of $100 is made, the merchant gets less than $98 after fees are deducted. and merchants end up raising the prices of their products to make up for the deducted fees. you might ask, how much of america has been charged with interchange fees by visa and mastercard since that hearing 16 years ago in 2006? according to payments consultancy mspi, it's $794 billion, all built into the prices retailers have to charge and consumers have to pay. interchange fees are designed to avoid competitive market pressures. banks get the fees, but banks do not set the fees. instead, the banks let visa and mastercard set the fees on their behalf. so the same schedule of fee rates applies for all banks in the network. this means that all banks in the network are guaranteed the same interchange fee, regardless of how efficient or inefficient the bank is in running a card operation or preventing fraud. it is a gravy train. when visa and mastercard raise interchange fees, banks want to issue more cards. because they make more on each swipe. and visa and mastercard profit when there are more swipes because they take their own cut, called a network fee, from the merchant on each swipe. but merchants and their customers take it on the chin. and we are going to hear that firsthand today. what can merchants do to try to keep fee rates down? not much. visa and mastercard are negotiating agents for thousands of banks. if a merchant wants to be able to accept payments from customers, they have to agree to visa and mastercard's fees and terms. i remember at that hearing 16 tables, at that table, one of the customers, for one of the retailers had a stack about three inches tall. they had asked for a copy of the contractual agreement with visa and mastercard when it came to imposing fees. they quickly said, this is not the complete contract. they would only give us part of it. three or four inches tall, and you expect a grocery store or restaurant to go through this? bottom line, when fees go up, it costs more to use money. and that cost gets built into prices consumers pay. visa and mastercard raised their swipe fees two weeks ago, despite bipartisan opposition from congress. it is obvious. we are suffering from inflation. do not raise these hidden fees again. they did it anyway. we urged them not to do it. they did not listen. and we will talk about it today. the credit and debit card systems are not competitive marketplaces. when you don't have real competition, what happens? you get higher cost, less innovation, weaker security. and new potential competitors get stifled. it is a sweetheart deal for the dominant networks, for the biggest banks, and for certain cardholders who have ritzy rewards programs. but the average small business and consumer pay the price. other countries have figured this out, incidentally. you cannot have a fair system when you let networks fix the swipe fees without competition or regulation. so the european union, australia, china, india, israel, south korea and more have stepped up to create reasonable swipe fee limits. we have the durbin amendment that applies only to debit cards. in 2010, i wrote that law that placed reasonable limits on debit interchange fees that visa and mastercard fixed on behalf of big banks. it has generated a lot of talk over the last few years. and, a lot of tv commercials. and boy, the big banks hate the durbin amendment like the devil hates holy water. in the absence of competitive marketplace, there needs to be some limit on visa and mastercard's fee fixing. here are a few steps i would like to suggest. let's have transparency and make it clear to consumers in their monthly statement how much of their card purchases are being deducted as interchange fees. you know you have the information, and you know you can provide it. maybe if consumers knew how much of their cards would be costing their favorite restaurants, they would use costly cards. second, let's stop the practice of charging swipe fees on the part of the transaction amount that is sales tax. that is a swipe tax on top of a sales tax. give the consumers a break. let's stop the exclusivity deals where visa and mastercard tell banks they cannot use any other network on their cards. let's give merchants a choice of card network options on each swipe and each online sale. let's make sure that someone besides the dominant network plays a role in setting security standards for cards. security innovators and startups are being shut out of the current system. and let's reduce inflationary pressure by preventing network fixed swipe fees from being jacked up to unreasonable levels. we got a lot to talk about today. we are joined by a distinguished panel. i thank them for joining this spirited discussion. and let me turn to senator grassley. sen. grassley: first of all mr. chairman, thank you for holding this hearing. and i particularly want to thank you for including financial institutions in the panel. interstate and swipe fees is the amount of money that merchants pay for accepting a debit or credit card. these fees vary depending on many factors, but in general end up being 1% to 3% of purchases. i just learned, including sales tax, a great focus has been paid to these fees as more and more consumers use credit and debit cards to make their purchases. as many of my colleagues know, this is an issue that has passionate voices on both sides. many iowa businesses have complained that it seems that these fees are high for accepting credit and debit cards for purchases. these businesses want to give their customers the option to pay using different methods, but that can be difficult if fees are eating into already tight margins, especially for small business owners. these may have to -- they may have to then pass along these costs to the consumer. on the other hand, there are a number of benefits to card usage for both consumers and businesses, including convenience, security, and increased purchasing power. consumers may spend more money on cards than if they use cash. consumers may also benefit through rewards or cash back on their cards. there is a balancing act here that we need to acknowledge, and that any future action should be carefully considered for possible impact. and i look forward to hearing from all of you on this subject. as this is a judiciary committee hearing, we are looking at competition and whether interchange fees are set above rates that would be found in the competitive market. two witnesses here today represent visa, mastercard, the two largest payment networks in the united states with over 80% share credit card market. i look forward from hearing whether these rates reflect market forces. i think though that when a subject like this comes up, particularly at a time of high inflation, that is a factor that brings attention to a lot of expenditures that people might feel are unnecessary. it seems like every industry, including merchants and banks, have been blamed by the president for inflation. that blame game doesn't work, as president biden spends trillions of dollars of money as fast as could be spent. a liberal wishlist, even when economists are warning about inflation. earlier this month, the bureau of labour statistics reported the 12 month increase of inflation for march was 8.5% year over year. this was the largest increase in over 40 years. all of this obscures the actual rising cost that iowans have been hit with in the midwest. the price of ground beef, 24.5% up. bacon, 26% up. porkchops, 23%. chicken, 31%. eggs, 22%. these are not luxury items, but absolute necessities for the family dinner table. these staggering increases are negatively impacting all americans and must get under control. and that is not by spending trillions more that are being proposed. sen. durbin: thank you. we have six witnesses, thank them for joining us. i'm going to give a short introduction to each before they are recognized. first witness is laura shapiro karet. she is chair and ceo of giant eagle, a supermarket chain headquartered in pittsburgh. 470 locations throughout pennsylvania, ohio, west virginia, maryland, and indiana. she served as ceo of giant eagle since 2012. previously served as senior vice president of marketing. she has worked for giant eagle since the year 2000, and has a bachelors degree from amherst. glad to have you here. second witness, bill, senior advisor to visa's chair and ceo, a position he has held since 2020. he is responsible for strategic initiatives. previously served as visa's president of europe, north america, and latin america. and he helped lead the company's restructuring in 2007 and its ipo in 2008. undergraduate degree from west virginia university and an mba from notre dame. thank you for being here. next witness is linda kirkpatrick, president of north american for mastercard. she is responsible for overseeing mastercard's operations and customer facing activities in the u.s. and canada. she has been with mastercard since 1997. and she previously served in a leadership role involving investor relations of u.s. strategy and communication. compliance programs and dispute resolution management. she has a degree from manhattanville college. thank you for joining us. next witness is ed -- close? did i get it right? that is because i represent chicago. he is the senior director of the federal director at the consumer program of the public research group. he has worked for them since 1989. oversees the federal consumer program, helps improve consumer reporting laws, identity theft protections, product safety regulation and more. cofounder of the americans for financial reform, received his undergraduate and master's degrees from the university of connecticut. senator blumenthal, take notice. our next witness is charles kim, executive vice president, chief financial officer of commerce bankshares, responsible for all financial functions of the company, as well as the company's strategic planning and marketing, technology, enterprise operations, and consumer card business. he has been with commerce bank and received his undergraduate and mba degrees from washington university. final witness is doug cantor. since 2021, he has served as general counsel for the national association of convenience stores. he previously practiced law and was general counsel to the merchant payments coalition. in his career, he worked as deputy chief of staff for the u.s. department of housing and urban development. and as a public school teacher. he received his ba from the university of virginia, and jd from yale law school. again, thanks to all the witnesses for being here. now, it is customary in this committee for us to ask you to take an oath to tell the truth. so if you would all please stand and raise your right hand. do you swear the testimony you are about to give will be the truth, the whole truth, and nothing but the truth, so help you god? let the record reflect that all the witnesses responded in the affirmative. now gives them permission to proceed. ms. karet: members of the committee, i am laura karet, ceo, president and executive chair of giant eagle, one of the nation's largest multiformat food, fuel and convenience retailers. with approximately 34,000 team members operating stores within five midwest states including pennsylvania and ohio. on april 22 of this year, with no negotiation or threat of competition and straining them, visa and mastercard imposed a fee increase that will cost giant eagle $1.3 million annually. i appreciate the opportunity to talk to you today about the impact of these swipe fees place on our business. i am proud to serve as vice chair of fmi, the food industry association. fmi works with and on behalf of the entire food industry to advance a safer, healthier, and more efficient consumer supply chain. fmi's membership includes nearly 1000 supermarket member companies that collectively operate almost 33,000 food retail outlets and employ nearly six million workers. our industry historically operates on razor thin margins of 1% to 2%. we operate in a highly competitive market, and as inflation has driven prices higher, our customers have become even more conscious on how they are spending their money, driving down profits. there are three points i would like to make today. first, giant eagle swipe fees have materially increased over time. and the april 22 unilateral increase will only exacerbate this problem. visa and mastercard together control 85% of the market. on april 22 of this year, both visa and mastercard increased the fees retailers pay, and they also created new categories of fees. every bank that issues credit and debit cards adopted these fee increases without deviation or exception. in my estimation, this cannot possibly comply with either the letter or the spirit of our nation's antitrust laws. this latest price increase fits the pattern we have seen for years. giant eagle has been paying higher and hyman payment fee costs. electronic tender sales make up about 82% of our sales transactions to our company. of the 82% that are electronic tender, about 37% of total sales are visa and mastercard. but when you look at total card processing fees, visa and mastercard make up over 62% of those fees. over the past four years, our fees have grown from 57% of total fees to 62% of our total fees, while at the same time, visa and mastercard sales have declined by almost 2%. in stark contrast, during the pandemic, my company and others like it were authorized by the usda to accept online payments from our customers using the supplemental nutrition assistance, snap ebt cards. it is interesting to note, those snap transactions are completed securely without visa or mastercard, and without incurring swipe fees. it is hard for us to understand why snap ebt cards could accommodate the changes this a sedated -- necessitated by the pandemic, but visa and mastercard used it as an avenue to raise prices. second, millions of customers suffer when swipe fees increase. because of the unilateral fee increases, visa and mastercard -- that they announced on april 22, my company and my customers will be paying an additional $1.3 million in swipe fees. this fee increase came on the heels of visa reporting in its march 22, 2022 quarterly financials that its profit margin was just above 50%. third, there must be competition in the debit and credit card markets. visa and mastercard are the only vendors that giant eagle cannot negotiate with. when giant eagle buys ketchup paper towels, its suppliers compete to give giant eagle the best price. ultimately, our customers benefit from a competitive market. in contrast, visa and mastercard do not compete for merchant business. the fees associated with accepting any type of payment for a particular good should be incidental to the transaction and certainly should not be among our highest expenses. this expense, swipe fees, is third only to labor and rent that we face. i applaud this committee for looking at ways to achieve robust competition in the use of credit and debit cards, similar to the robust competition we must take part in everyday. i would be pleased to answer your questions. sen. durbin: thank you. mr. sheedy of visa. make sure that button is on. mr. sheedy: good morning. chairman durbin, ranking member grassley, members of the committee, thank you for the opportunity to testify today. for more than 60 years, visa has enabled people, businesses and governments to make and receive payments through its secure transaction processing network. i am pleased to share with the committee the many ways visa works to promote safety, security, innovation, and competition to drive economic growth and financial inclusion. recently, we have taken a number of important steps to support the economy and to maintain the security, reliability and stability of our network. these steps are intended to help businesses of all sizes, including those that may be struggling due to the effects of the pandemic and consumers across the country. at the outset of the pandemic, we lowered interchange rates for certain key segments, including grocery stores, restaurants, and education. in april, we lowered interchange rates for the majority of u.s. businesses. visa is also taking steps to make online payments more secure by encouraging the use of secured digital tokens so that transactions can be processed without sharing a cardholder's incentive account information, and implementing changes to promote accurate transaction processing. as a payment network, visa takes its role very seriously. that the goal of fostering balance, security, and stability while growing the overall payments ecosystem. it is important to note that visa does not earn revenue from interchange fees. our brand promise has always been rooted in being the best way to pay and be paid. we remain steadfast in our focus to deliver in this commitment. our success is based heavily on investing in and enhancing the security of our network. more so than any other part of our business. trust and security are the f