Jamie Dimon, CEO of JPMorgan Chase, and Senator Dick Durbin (D-IL) have been engaging in a war of words of late, with Dimon denouncing Durbin’s amendment to the Dodd-Frank Financial Finagling Act, which calls for a review of debit-card interchange fees, as “price-fixing at its worst.” Durbin has now responded:
For years, card-issuing banks like Chase have agreed to let the Visa and MasterCard duopoly fix the interchange fee rates that banks receive from merchants each time a debit card is swiped. The banks get the fees but they do not set the fees. This system of price-fixing by Visa and MasterCard on behalf of thousands of banks has gone entirely unregulated.
Which is not to say that there’s a set fee regardless of conditions:
Fraud rates are far lower for PIN debit transactions than for signature debit transactions, but Visa and MasterCard set higher interchange fees for signature debit than for PIN ostensibly to cover the higher cost of fraud. Banks now urge cardholders to pay with signature in order to get the higher fees. For example, on April 21, 2010, the American Banker reported that your own bank sent a mailing to your debit customers that strongly suggested they should “always select” signature.
It’s not just Chase, either. I learned rather quickly that my own bank will decline PIN transactions, but will happily approve signature transactions for exactly the same amount.
And there’s this:
I recognize that Chase will likely see decreased revenue from interchange reform, but I urge you to keep some perspective. Last year Chase had $17.4 billion in profits — up 48 percent from the previous year — and a 15 percent profit margin. Your own personal compensation “jumped nearly 1,500 percent to $20.8 million in 2010″ according to Reuters. In contrast, middle-class American families are struggling to get by in a tough economy — an economy that went south because of the banking industry’s unregulated excesses.
And if the idea of a Senate Democrat claiming to be on the side of “middle-class American families” seems to have the same resonance as the idea of fleas soliciting donations to the American Kennel Club, I’d remind you that blind squirrels aren’t exactly starving these days. I’d like to think that this is Durbin’s act of contrition for aiding and abetting the creation of the notion of Too Big To Fail. If so, he’s got lots of penance yet to do.