If you’re a member of Congress trying to rein in Wall Street, now’s your moment, and Rep. Peter Welch (D-VT) is seizing it.
Welch helped lead the effort in 2010 to limit the “swipe fees” banks can charge retailers for each debit card transaction — fees retailers passed on to consumers. Those rules went into effect earlier this year and, as if to serve as recruiters for the anti-Wall Street protests spreading across the country, Bank of America and other financial firms decided to recoup the lost profits by imposing an ATM fee on their customers — a penalty of sorts for having automated access to your own money.
In a functioning market this practice might have ended before it began, as disgruntled customers took their business to firms that didn’t attempt to bilk their customers.
That’s not happening. So Welch wants Attorney General Eric Holder to investigate these banks for collusive behavior.
“There’s significant smoke here that there is price signaling,” he told me in a Thursday phone interview.
Welch cites statements by major financial firms, and trade associations to as evidence.
When an effort to delay the swipe fees failed in the Senate, the Texas Bankers Association notified its members, “Now, the industry must regroup and each and every one of you must decide how you are going to pay for the use of debit cards. It may be through a monthly fee; it may be by using a ‘prepaid’ card as opposed to a debit card; it may be that there is a way to not offer retailers instant credit for the transactions, limiting the amounts that can be charged, etc.”
Following Bank of America’s lead, JP Morgan and Wells Fargo have announced similar plans. Together they comprise three of the country’s four largest banks. So Welch wants the Justice Department to investigate whether the firms are communicating, publicly or otherwise, with the intent to impose collective prices, rather than let customers decide.
“We urge you to immediately open an investigation to determine whether banking trade associations and/or individual banks have violated antitrust laws,” he wrote in a letter to Attorney General Eric Holder. “Specifically, we are concerned that communications between banks and bank associations that may amount to price signaling or collusion have occurred in the wake of Congressional action to reform debit card swipe fees.”
This is a new effort, but one that’s readymade for the public and other members of Congress to join.
“It is absolutely appropriate for the DOJ to look into the concerns Rep. Welch raised [Thursday],” said Max Gleischman, spokesman for Sen. Dick Durbin (D-IL) who led the Senate swipe fee reform effort. “We support competition and transparency not the collusion and hidden fees the big banks are all too familiar with.”
The Honorable Eric Holder
United States Attorney General
U.S. Department of Justice
950 Pennsylvania Avenue, NW
Washington, DC 20530
Dear Attorney General Holder:
We urge you to immediately open an investigation to determine whether banking trade associations and/or individual banks have violated antitrust laws. Specifically, we are concerned that communications between banks and bank associations that may amount to price signaling or collusion have occurred in the wake of Congressional action to reform debit card swipe fees.
As you are well aware, Visa and MasterCard are the two dominant card networks that set pricing for thousands of banks across the country. The result is that banks which normally compete agree not to do so when it comes to swipe fee prices and instead accept fees centrally determined by Visa and MasterCard.
This collective pricing activity is harmful to competition, raises serious legal questions, and has led to consumers and merchants in the United States earning the dubious honor of paying the highest credit card swipe fees in the world. American businesses of every size have seen swipe fees rise faster than any other expense in the last decade – growing faster even than health care costs.
It appears that banks are seeking to justify fee increases after Congress and the Federal Reserve Board recently limited banks’ ability to collude with networks to set debit interchange fees. Statements made by individual banks and their trade associations raise questions about whether some price increases that have occurred this year have actually been coordinated.
The statements that caught our attention include:
· “‘What do we do to offset the loss of revenue?’ Wells Fargo CEO John G. Stumpf asked colleagues in London on Monday. ‘Unfortunately, the consumer will pay.’ According to the American Banker, Wells Fargo may increase minimum balances, charge money for debit cards and dump free checking so it can recoup about $1.3 billion in losses stemming from Mr. Durbin’s needless meddling.” The Washington Times, May 26, 2011 (available at http://www.washingtontimes.com/news/2011/may/26/washington-declares-war-on-your-debit-card/)
· “Wells Fargo (NYSE: WFC) will consider adding fees and increasing current fees in the event that the Durbin Amendment goes into law as scheduled, according to Wells Fargo Chairman and CEO John Stumpf during the Barclays Capital Americas Select Conference in London.” MyBankTracker, May 26, 2011 (available at http://www.mybanktracker.com/bank-news/2011/05/26/wells-fargo-nodurbin-delay-means-fees/)
· “‘The only options left will be to shift these costs to consumers or cease providing debit cards,’ said ABA President Frank Keating.” Center for Public Integrity, May 4, 2011 (available at http://www.minyanville.com/businessmarkets/articles/credit-card-companies-debit-cards-interchange/5/4/2011/id/34339)
· “‘Free checking is going to be gone,’ said Independent Community Bankers Association President Jerry C. Walker. ‘You can kiss that away. If you want a debit card, there are going to be (extra) fees.'” TMCNet, May 8, 2011 ( available at http://business-video.tmcnet.com/news/2011/05/08/5494967.htm)
· “Now, the industry must regroup and each and every one of you must decide how you are going to pay for the use of debit cards. It may be through a monthly fee; it may be by using a “prepaid” card as opposed to a debit card; it may be that there is a way to not offer retailers instant credit for the transactions, limiting the amounts that can be charged, etc. I would also think you will be considering not paying for debit card fraud like many of you have been for a long time.” Email from Texas Bankers Association to its Members in response to U.S. Senate vote to defeat the Tester-Corker Amendment, June 8, 2011 (attached for your reference).
These statements are just a sampling of the statements made by bankers this year. Bank officials made similar statements during Congressional consideration of the Credit CARD Act and when bank overdraft fees were regulated. There is clearly no problem with banks making independent business decisions based upon the landscape as they see it. Antitrust issues are raised, however, if they are attempting to facilitate group decisions on their prices, terms and conditions.
Actions taken by Bank of America (BOA) earlier this week highlight our concern and demonstrate that immediate scrutiny of additional anticompetitive pricing practices by banks is in order. Specifically, BOA announced it will begin charging customers a $5.00 monthly fee to use their debit cards. We are concerned that BOA’s announcement may be a reaction to, and participation in, price signaling or collusion that has occurred among and between banks and bank associations.
Again, General Holder, We urge you to immediately open an investigation into this matter and look forward to your prompt response.
Sincerely,
PETER WELCH
Member of Congress
