Friday, May 14, 2010

Durbin Amendment to Financial Reform Bill Will Lead to Higher Payment Card Costs and Less Choice for Consumers

MasterCard WorldwideImage via Wikipedia


Government Price Regulation on Debit Card Acceptance Costs Could Drive Small Financial Institutions Out of the Debit Market

Purchase, N.Y., May 13, 2010 - The amendment to the financial regulation reform bill approved today by the Senate will reduce competition and hurt consumers, MasterCard said. The Company continues to oppose the amendment approved in the U.S. Senate that is designed to increase profits for big box merchants at considerable expense to consumers, community banks, and credit unions.



The amendment, which was offered by Senator Dick Durbin (D-IL), attempts to regulate the operation of debit card networks by shifting costs from big box merchants to consumers. The Durbin amendment would give lobbyists for big retailers what they have been unable to achieve through other efforts – the ability to maintain all the benefits they receive from debit card acceptance while transferring the cost to consumers. The Government Accountability Office, in a recent report on interchange fees, acknowledged that is what happened in Australia when the government there arbitrarily regulated these fees – consumers ended up paying more for their payment cards, and there appears to be no evidence that merchants have passed on any savings to consumers as a result of artificially reduced interchange fees. 

The Durbin amendment would also provide merchants greater flexibility to use discounts to encourage consumers to use different forms and brands of payment. MasterCard rules already allow merchants to discount for cash, check, debit and competing brands, but few merchants choose to use this option to reduce costs for consumers. The amendment would also allow merchants to set minimum and maximum transaction amounts for the use of payment cards. For reasons unexplained, Senator Durbin’s amendment would not require big box merchants to disclose these anti-consumer limits to consumers, so consumers would find themselves surprised at the cash register when they find their cards are rejected because they spent too much or not enough. Network rules currently protect consumers from this type of harm and must be left in place. 

In short, this amendment helps big merchants, but consumers will pay the price. 

The Durbin amendment is opposed by community banks and credit unions as well as small business organizations. For example, the Independent Community Bankers of America and the Credit Union National Association have noted that the amendment would “significantly harm thousands of community banks and credit unions that offer debit and credit cards to their customers and members.” Additionally, small business organizations like the National Black Chamber of Commerce and the Latino Coalition have also expressed their opposition directly to Senators. 

We urge Members of Congress to protect consumers, community banks, credit unions, and small businesses by opposing this amendment as the bill moves forward. 
About MasterCard Worldwide
MasterCard Worldwide advances global commerce by providing a critical economic link among financial institutions, businesses, cardholders and merchants worldwide. As a franchisor, processor and advisor, MasterCard develops and markets payment solutions, processes over 22 billion transactions each year, and provides industry-leading analysis and consulting services to financial-institution customers and merchants. Powered by the MasterCard Worldwide Network and through its family of brands, including MasterCard®, Maestro® and Cirrus®, MasterCard serves consumers and businesses in more than 210 countries and territories. For more information go to www.mastercard.com. Follow us on Twitter: @mastercardnews.


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Durbin Amendment to Financial Reform Bill Will Lead to Higher Payment Card Costs and Less Choice for Consumers

MasterCard WorldwideImage via Wikipedia


Government Price Regulation on Debit Card Acceptance Costs Could Drive Small Financial Institutions Out of the Debit Market

Purchase, N.Y., May 13, 2010 - The amendment to the financial regulation reform bill approved today by the Senate will reduce competition and hurt consumers, MasterCard said. The Company continues to oppose the amendment approved in the U.S. Senate that is designed to increase profits for big box merchants at considerable expense to consumers, community banks, and credit unions.



The amendment, which was offered by Senator Dick Durbin (D-IL), attempts to regulate the operation of debit card networks by shifting costs from big box merchants to consumers. The Durbin amendment would give lobbyists for big retailers what they have been unable to achieve through other efforts – the ability to maintain all the benefits they receive from debit card acceptance while transferring the cost to consumers. The Government Accountability Office, in a recent report on interchange fees, acknowledged that is what happened in Australia when the government there arbitrarily regulated these fees – consumers ended up paying more for their payment cards, and there appears to be no evidence that merchants have passed on any savings to consumers as a result of artificially reduced interchange fees. 

The Durbin amendment would also provide merchants greater flexibility to use discounts to encourage consumers to use different forms and brands of payment. MasterCard rules already allow merchants to discount for cash, check, debit and competing brands, but few merchants choose to use this option to reduce costs for consumers. The amendment would also allow merchants to set minimum and maximum transaction amounts for the use of payment cards. For reasons unexplained, Senator Durbin’s amendment would not require big box merchants to disclose these anti-consumer limits to consumers, so consumers would find themselves surprised at the cash register when they find their cards are rejected because they spent too much or not enough. Network rules currently protect consumers from this type of harm and must be left in place. 

In short, this amendment helps big merchants, but consumers will pay the price. 

The Durbin amendment is opposed by community banks and credit unions as well as small business organizations. For example, the Independent Community Bankers of America and the Credit Union National Association have noted that the amendment would “significantly harm thousands of community banks and credit unions that offer debit and credit cards to their customers and members.” Additionally, small business organizations like the National Black Chamber of Commerce and the Latino Coalition have also expressed their opposition directly to Senators. 

We urge Members of Congress to protect consumers, community banks, credit unions, and small businesses by opposing this amendment as the bill moves forward. 
About MasterCard Worldwide
MasterCard Worldwide advances global commerce by providing a critical economic link among financial institutions, businesses, cardholders and merchants worldwide. As a franchisor, processor and advisor, MasterCard develops and markets payment solutions, processes over 22 billion transactions each year, and provides industry-leading analysis and consulting services to financial-institution customers and merchants. Powered by the MasterCard Worldwide Network and through its family of brands, including MasterCard®, Maestro® and Cirrus®, MasterCard serves consumers and businesses in more than 210 countries and territories. For more information go to www.mastercard.com. Follow us on Twitter: @mastercardnews.


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Visa's Statement on the Approval of the Durbin Amendment

Visa Debit logoImage via Wikipedia


According to Glenbrook's Payments News, Visa has released the following statement on yesterday's approval of the Durbin Amendment:
We are disappointed that Senator Durbin has decided to force unrelated legislation into the financial reform package at the eleventh hour without a hearing or debate.
“Thursday’s vote is another step in a lengthy legislative process. We’re hopeful that when the issue is fully reviewed by members of Congress during the next phase of negotiations, they will conclude the amendment harms consumers, credit unions and community banks and should be eliminated from the bill.
“Visa will continue to work with policymakers to educate them about this flawed legislation that imposes price controls on debit products and allows retailers to dictate which payment card is used by consumers at the point of sale.
“Debit products deliver significant incremental value over cash and check, including guaranteed payment to merchants, greater security and increased sales, all of which the Durbin amendment ignores.
“At the direction of Congress, the U.S. Government Accountability Office (GAO) has twice examined the potential impact of proposed interchange legislation, and confirmed that there is little evidence to suggest that consumers would benefit. In Australia, where price controls have been implemented, consumers have not seen a reduction in retail prices, and instead have experienced reduced consumer benefits and increased costs.
“We hope Congress sees today’s amendment for what it is – an attempt by retailers to increase their profits at the expense of consumers.”


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Visa's Statement on the Approval of the Durbin Amendment

Visa Debit logoImage via Wikipedia


According to Glenbrook's Payments News, Visa has released the following statement on yesterday's approval of the Durbin Amendment:
We are disappointed that Senator Durbin has decided to force unrelated legislation into the financial reform package at the eleventh hour without a hearing or debate.
“Thursday’s vote is another step in a lengthy legislative process. We’re hopeful that when the issue is fully reviewed by members of Congress during the next phase of negotiations, they will conclude the amendment harms consumers, credit unions and community banks and should be eliminated from the bill.
“Visa will continue to work with policymakers to educate them about this flawed legislation that imposes price controls on debit products and allows retailers to dictate which payment card is used by consumers at the point of sale.
“Debit products deliver significant incremental value over cash and check, including guaranteed payment to merchants, greater security and increased sales, all of which the Durbin amendment ignores.
“At the direction of Congress, the U.S. Government Accountability Office (GAO) has twice examined the potential impact of proposed interchange legislation, and confirmed that there is little evidence to suggest that consumers would benefit. In Australia, where price controls have been implemented, consumers have not seen a reduction in retail prices, and instead have experienced reduced consumer benefits and increased costs.
“We hope Congress sees today’s amendment for what it is – an attempt by retailers to increase their profits at the expense of consumers.”


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Durbin Statement on His Debit Card Swipe Fee Amendment








DURBIN STATEMENT ON HIS DEBIT CARD SWIPE FEE AMENDMENT


Thursday, May 13, 2010


MAYWOOD, IL - AUGUST 31:   U.S. Sen. Dick Durb...[WASHINGTON, D.C.] – Assistant Senate Majority Leader Dick Durbin (D-IL) issued the following statement after the Senate approved his amendment to help reduce the swipe fees that small businesses pay on every credit and debit card sale by a bipartisan vote of 64-33:



“Wall Street reform is really about two things:  holding the big banks accountable for how they operate and empowering consumers to make good financial choices. Passage of this amendment is a win for the public on both fronts.


Passage of this measure gives small businesses and their customers a real chance in the fight against the outrageously high “swipe fees” charged by Visa and MasterCard.  It will prevent the giant credit card companies from using anti-competitive practices, allow merchants to offer discounts to their customers and restore common sense and fairness to this broken system.




By requiring debit card fees to be reasonable, and by cleaning up Visa’s and MasterCard’s worst abuses, small businesses and their customers will be able to keep more of their own money. Making sure small businesses can grow and prosper is vital to putting our country back on solid economic footing.”






Swipe fees are supposedly charged by Visa and MasterCard in order to cover the cost of processing a credit or debit card transaction.   However, Visa and MasterCard continue to raise swipe fees even though processing costs have decreased.   High swipe fees are yet another way that banks and credit card companies hurt small businesses by charging fees that cut into already tight profit margins.


An estimated $48 billion in swipe fees were charged by credit and debit card networks in 2008 – this money came out of the bottom line of small businesses and merchants across America, and 80 percent of this money went to just ten large banks. 

Additional information about the Durbin amendment is attached.



Support Durbin Amendment #3989
To Help Small Businesses by Ensuring that Debit Card Interchange Fees Are Reasonable

 What the Durbin Amendment does:

·         The Durbin amendment would direct the Fed to issue rules to ensure that debit interchange fees are reasonable and proportional to the processing costs incurred. Visa and MasterCard currently charge debit interchange fees of around 1-2% of the transaction amount.  These fees are far higher than the actual cost of processing debit transactions, and they mean that small businesses and merchants always get shortchanged when they accept a debit card for a sale.  
·         The Durbin amendment also prevents card networks like Visa and MasterCard from penalizing sellers for offering discounts to customers.  The amendment would allow sellers to offer discounts for customers to use competing card networks and for customers to pay by cash, check or debit card.  The amendment would also allow sellers to choose to decline credit cards for small dollar purchases (because interchange fees often exceed profits on such sales). 


Why the Durbin Amendment is needed:


·         The Durbin amendment is a response to interchange price-fixing by Visa and MasterCard.  Interchange fees are received by the card-issuing bank in a debit transaction.  However, Visa and MasterCard, which control 80% of the debit market, set the debit interchange fee rates that apply to all banks within their networks.  Every bank gets the same interchange fee rate, regardless of how efficiently a bank conducts debit transactions.  Visa and MasterCard do not allow banks to compete with one another or negotiate with merchants over interchange rates, and there is no constraint on Visa and MasterCard’s ability to fix the rates at unreasonable levels.  Visa and MasterCard constantly raise interchange rates because the more interchange the banks receive, the more the banks will issue cards.  Visa and MasterCard receive a fee each time a card is swiped, so rising interchange rates enrich them too. 
·         Visa and MasterCard have reduced debit interchange rates in other countries while increasing them in the U.S.  While Visa and MasterCard continue to raise U.S. interchange rates (which are already the world’s highest), GAO found that “regulators in other countries have worked with Visa and MasterCard to voluntarily reduce their interchange rates.”  Just last month, Visa lowered many European debit rates by 60% while increasing many U.S. debit rates by 30%.

What the Durbin Amendment DOES NOT do:

·         The Durbin amendment does not affect credit card interchange fees.  Some have argued that the Durbin amendment would reduce credit availability by regulating credit card interchange rates.  However, the amendment’s reasonable fee requirement only applies to debit cards.  
·         The Durbin reasonable debit fee requirement exempts banks and credit unions with assets under $10 billion (this includes 99% of all banks and credit unions).  Under the Durbin amendment, the requirement that debit fees be reasonable does not apply to debit cards issued by institutions with assets under $10 billion.  This means that Visa and MasterCard can continue to set the same debit interchange rates that they do today for small banks and credit unions.  Those institutions would not lose any interchange revenue that they currently receive.  

·         The Durbin amendment would not enable merchants to discriminate against debit cards issued by small banks and credit unions. Visa and MasterCard contractually require merchants to accept all cards within their networks, and the amendment does not change that requirement.  

·         The Durbin amendment would not have the Federal Reserve set interchange prices.  Under the Durbin amendment the Fed would not set debit interchange prices.  Instead the Fed would oversee the debit interchange fees set by card networks to ensure that they are “reasonable and proportional” to cost.  This is the same “reasonable and proportional” standard that Congress directed the Fed to use to oversee consumer credit card fees in the 2009 Credit CARD Act.




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Durbin Statement on His Debit Card Swipe Fee Amendment








DURBIN STATEMENT ON HIS DEBIT CARD SWIPE FEE AMENDMENT


Thursday, May 13, 2010


MAYWOOD, IL - AUGUST 31:   U.S. Sen. Dick Durb...[WASHINGTON, D.C.] – Assistant Senate Majority Leader Dick Durbin (D-IL) issued the following statement after the Senate approved his amendment to help reduce the swipe fees that small businesses pay on every credit and debit card sale by a bipartisan vote of 64-33:



“Wall Street reform is really about two things:  holding the big banks accountable for how they operate and empowering consumers to make good financial choices. Passage of this amendment is a win for the public on both fronts.


Passage of this measure gives small businesses and their customers a real chance in the fight against the outrageously high “swipe fees” charged by Visa and MasterCard.  It will prevent the giant credit card companies from using anti-competitive practices, allow merchants to offer discounts to their customers and restore common sense and fairness to this broken system.




By requiring debit card fees to be reasonable, and by cleaning up Visa’s and MasterCard’s worst abuses, small businesses and their customers will be able to keep more of their own money. Making sure small businesses can grow and prosper is vital to putting our country back on solid economic footing.”






Swipe fees are supposedly charged by Visa and MasterCard in order to cover the cost of processing a credit or debit card transaction.   However, Visa and MasterCard continue to raise swipe fees even though processing costs have decreased.   High swipe fees are yet another way that banks and credit card companies hurt small businesses by charging fees that cut into already tight profit margins.


An estimated $48 billion in swipe fees were charged by credit and debit card networks in 2008 – this money came out of the bottom line of small businesses and merchants across America, and 80 percent of this money went to just ten large banks. 

Additional information about the Durbin amendment is attached.



Support Durbin Amendment #3989
To Help Small Businesses by Ensuring that Debit Card Interchange Fees Are Reasonable

 What the Durbin Amendment does:

·         The Durbin amendment would direct the Fed to issue rules to ensure that debit interchange fees are reasonable and proportional to the processing costs incurred. Visa and MasterCard currently charge debit interchange fees of around 1-2% of the transaction amount.  These fees are far higher than the actual cost of processing debit transactions, and they mean that small businesses and merchants always get shortchanged when they accept a debit card for a sale.  
·         The Durbin amendment also prevents card networks like Visa and MasterCard from penalizing sellers for offering discounts to customers.  The amendment would allow sellers to offer discounts for customers to use competing card networks and for customers to pay by cash, check or debit card.  The amendment would also allow sellers to choose to decline credit cards for small dollar purchases (because interchange fees often exceed profits on such sales). 


Why the Durbin Amendment is needed:


·         The Durbin amendment is a response to interchange price-fixing by Visa and MasterCard.  Interchange fees are received by the card-issuing bank in a debit transaction.  However, Visa and MasterCard, which control 80% of the debit market, set the debit interchange fee rates that apply to all banks within their networks.  Every bank gets the same interchange fee rate, regardless of how efficiently a bank conducts debit transactions.  Visa and MasterCard do not allow banks to compete with one another or negotiate with merchants over interchange rates, and there is no constraint on Visa and MasterCard’s ability to fix the rates at unreasonable levels.  Visa and MasterCard constantly raise interchange rates because the more interchange the banks receive, the more the banks will issue cards.  Visa and MasterCard receive a fee each time a card is swiped, so rising interchange rates enrich them too. 
·         Visa and MasterCard have reduced debit interchange rates in other countries while increasing them in the U.S.  While Visa and MasterCard continue to raise U.S. interchange rates (which are already the world’s highest), GAO found that “regulators in other countries have worked with Visa and MasterCard to voluntarily reduce their interchange rates.”  Just last month, Visa lowered many European debit rates by 60% while increasing many U.S. debit rates by 30%.

What the Durbin Amendment DOES NOT do:

·         The Durbin amendment does not affect credit card interchange fees.  Some have argued that the Durbin amendment would reduce credit availability by regulating credit card interchange rates.  However, the amendment’s reasonable fee requirement only applies to debit cards.  
·         The Durbin reasonable debit fee requirement exempts banks and credit unions with assets under $10 billion (this includes 99% of all banks and credit unions).  Under the Durbin amendment, the requirement that debit fees be reasonable does not apply to debit cards issued by institutions with assets under $10 billion.  This means that Visa and MasterCard can continue to set the same debit interchange rates that they do today for small banks and credit unions.  Those institutions would not lose any interchange revenue that they currently receive.  

·         The Durbin amendment would not enable merchants to discriminate against debit cards issued by small banks and credit unions. Visa and MasterCard contractually require merchants to accept all cards within their networks, and the amendment does not change that requirement.  

·         The Durbin amendment would not have the Federal Reserve set interchange prices.  Under the Durbin amendment the Fed would not set debit interchange prices.  Instead the Fed would oversee the debit interchange fees set by card networks to ensure that they are “reasonable and proportional” to cost.  This is the same “reasonable and proportional” standard that Congress directed the Fed to use to oversee consumer credit card fees in the 2009 Credit CARD Act.




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First Data Reports First Quarter 2010 Adjusted Revenue of $1.5 Billion, Up 3%





http://www.firstdata.com/en_us/home

· Signed Three New Revenue Sharing Agreements, 14 Referral Arrangements and 21 New ISO’s
· Renewed and Extended Commerzbank Debit Processing Agreement
· Renewed Agreements with 443 Financial Institutions
ATLANTA--(BUSINESS WIRE)--First Data Corporation today reported its financial results for the first quarter ended March 31, 2010. Consolidated revenue for the quarter was up 16% to $2.4 billion. Consolidated revenue growth was primarily driven by the formation of the Bank of America Merchant Services alliance which has substantially extended First Data’s leadership in merchant acquiring. Adjusted revenue increased 3% for the quarter due mainly to growth in the Retail and Alliance Services segment and growth in the International segment revenue helped by a weaker U.S. dollar.
“The consistency of our strategy has positioned us well in an improving economy.”
For the first quarter, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $424 million, compared with $472 million for the first quarter of 2009. The timing of incentive compensation accruals increased expenses by $37 million year over year and EBITDA was also lower due to the termination of services by Washington Mutual, which was acquired by J.P. Morgan Chase. For the quarter, the net loss attributable to First Data was $240 million, which includes after tax interest expense of $283 million.
“In the first quarter, First Data focused on growth,” said Joe Forehand, chairman and CEO. “The consistency of our strategy has positioned us well in an improving economy.”
Segment Results
Retail and Alliance Services segment revenue for the first quarter was $737 million, up 7%. Favorable drivers of segment revenue included transaction growth of 9% (excluding the effects of the Bank of America Merchant Services Alliance) and growth in the prepaid and point-of-sale equipment lines of business. During the quarter, Retail and Alliance Services added three revenue share agreements, 14 referral agreements, and 21 new independent sales organizations. Segment EBITDA was $249 million compared with $265 million for the first quarter of 2009. Segment EBITDA declined due to the timing of incentive compensation accruals of $9 million, unfavorable changes in product mix, price compression, and new product development expense. Margin was 33.8%.
Financial Services segment revenue for the first quarter was $346 million, down 7%. The previously disclosed loss of Washington Mutual accounted for $20 million of the decline. Excluding the Washington Mutual termination, segment revenue declined 2%. New business growth was offset by price compression and a decline of 5% in active card accounts on file. Segment EBITDA was $133 million, compared with $162 million for the first quarter of 2009. Segment EBITDA declined due to lower revenue, the timing of incentive compensation accruals and an increase in technology expenses. Margin was 38.5%.
International segment revenue for the first quarter was $392 million, up 15%. Segment revenue on a constant currency basis was up 4%, due in part to strong transaction growth of 14%, a 5% increase in card accounts on file and acquisitions. Segment EBITDA was $78 million, compared with $72 million for the first quarter of 2009. Margin was 19.9%. On a constant currency basis, segment EBITDA was $70 million, down 4%, and margin was 19.7%. Constant currency segment EBITDA decreased primarily due to the timing of incentive compensation accruals offset in part by higher revenue.
Significant Events
Commerzbank Extends Processing Agreement with First Data
On April 15, First Data announced the extension of a debit processing agreement with Commerzbank. Under the terms of the renewal agreement, First Data will continue to provide technical processing for cross-border Maestro transactions for Germany's second-largest financial institution until 2015.
Non-GAAP Measures
In certain circumstances, results have been presented that are non-GAAP measures and should be viewed in addition to, and not in lieu of, the company's reported results. Reconciliations to comparable GAAP (generally accepted accounting principles) measures are available in the accompanying schedules and in the "Investor Relations" section of the company's website atwww.firstdata.com.
Investor Conference Call
The company will host a conference call and webcast on Friday, May 14, at 8 a.m. EDT to review first quarter financial results. Joe Forehand, chairman and CEO; Pat Shannon, chief financial officer; Ed Labry, president of Retail and Alliance Services; Kevin Schultz, president of Financial Services; and Silvio Tavares, senior vice president, investor relations will participate on the call.
To listen to the call, dial 877-303-6502 (U.S.) or +1-224-357-2195 (outside the U.S.) 10 minutes prior to the start of the call. The call will also be webcast on the “Investor Relations” section of the First Data website, http://ir.firstdatacorp.com/events.cfm. Please click on the webcast link at least 15 minutes prior to the call. A slide presentation to accompany the call will be included in the webcast and also will be available under the “Investor Relations” section of the website.
Please note: All statements made by First Data officers on this call are the property of First Data and subject to copyright protection. Other than the replay, First Data has not authorized, and disclaims responsibility for, any recording, replay or distribution of any transcription of this call.
About First Data
First Data powers the global economy by making it easy, fast and secure for people and businesses to buy goods and services using virtually any form of electronic payment. Whether the choice of payment is a gift card, a credit or debit card or a check, First Data securely processes the transaction and harnesses the power of aggregate data to deliver intelligence and insight for millions of merchant locations and thousands of card issuers in 36 countries. For more information, visit www.firstdata.com.

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