And debit card. The senate before the Senate Judiciary committee is two hours. 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 are going to talk about a hidden fee that fuels the fires of inflation across america every day. What they may not know is this wifi is contributing to the problem of inflation. When swipe fees on credit and debit card to go up, as they just recently did, it increases inflation. Consumers ultimately pay the price. Ironically, this journey for me started in this very room 16 years ago. Arland specter was the chairman of the Senate Judiciary committee. He called a key meeting on swipe fees and interchange fees. I intended because i was not familiar with those terms. I heard for the first time wettest life we was. The fact that i use my debit card and credit card a swipe fee was being charged to the retailer that i was ultimately paying. And then i learned that there was virtually no negotiation in those fees. Retailers were at the mercy of credit cards and banks in terms of what those fees would be. There was no competition, because we have a democracy here well represented at the table. This created a situation where the Market Forces really do not work. They are not supposed to work. They are not designed to work what has happened in america as we all know, the statistics on the amount of americans paying with plastic tells the story. These are from 2020. Im 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 in 2020, 127 billion transactions in america. How are we doing with cash transactions . 32. 8 billion. How about the use of a check . Five. Five billion. So, we are becoming a nation that clearly, maybe even a world, that pays with plastic. Today we are going to ask a few questions about how those payments are made, and the charges that are imposed. This Committee Held a hearing with witnesses from bees and mastercard 16 years ago to discuss anticompetitive fees. We are back. Here is what ive learned. Because im asking target row about 80 of the credit and debit card market. They have established a system of fees and rules that apply to every transaction of the billions that i just mentioned, involving cards used by thousands of banks. And each time a credit or debit card is used, visa and mastercard charge fees that take a cut out of the transaction. You dont see it on the check in the restaurant, but its there. Some of that cut they keep for themselves. Most of it is given to the bank that issued the card. The fee that wasnt massacred require the merchant to pay to the chartarum bank is called an interchange fee. It is usually charged as a percentage of the transaction plus a flat fee. For example, 2 plus ten cents per transaction. That means when a card transaction of 100 is made, the merchant gets less than 98 after the fees are deducted. Merchants and of raising the prices of their products to make up for the deducted fees. You might ask, how much have americans been charged by interchange fees of visa mastercard since that hearing 16 years ago in 2006 . According to Payments Consultancy ms p. I. It is 794 billion dollars. 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 they do not set the fees. Instead the banks led visa and mastercard set the fees on their behalf. The same schedule of fee rates applies for all banks on the network. This means that all banks on the network or guaranteed to same interchange fee, regardless of how efficient or inefficient the banks in running a card operation or preventing fraud. It is a gravy train. When visa mastercard raise interchange fees banks want issuing more cards because they make more on each flight. These elastic are profit when there are more swipes, because they make their own cut, called a network free, from the merchant on each flight. Merchants and the customers take it on the chin. We will hear that firsthand today. What can merchants do to try to keep them or to feast down . Not much. Visa and mastercard are negotiating agents for thousands of banks. If a merchant wants to be able to accept payment from those banks customers they have to agree to visa and master card fees in terms. I remember at that hearing 16 years ago, and at that table one of the customers 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 opposing fees. They quickly feed this isnt a complete contract they would only give us part of it. Three or four inches tall you expect a grocery store, a restaurant, to go through all of 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 raise their swipe fees two weeks ago, despite bipartisan opposition from congress. It was obvious, we are suffering from inflation. Dont raise these hidden fees again they did it anyway. Senator marshall and i, representatives wells and vandyne urge them not to do it, they didnt listen. We will talk about it today. The credit and debit card system are not competitive in the market places. When you dont have real competition, what happens . You get higher cost, less innovation, weaker security. New potential competitors get stifled. It is a sweetheart deal for the dominant networks, biggest banks, and for certain cardholders who have received reward programs. The average Small Business and consumer, they pay the price. Other countries have figured this out, incidentally. You cant have a fair system when you let networks fix the slight fees without regulation or competition. The European Union, australia, china, israel, india, south korea and more have stepped up to create reasonables wifi limits. We have the durban amendment, which applies only to debit card. In 2010 i wrote that law that were placed reasonable limits on debit interchange fees that visa immense card set on big banks. It has generated a lot of talk over the last few years. And a lot of teeny commercials. Boy, the big banks hate to durban amendment like the double hates holy water. In the absence of a competitive marketplace there needs to be some limit on visa mastercard fee fixing. Here are a few steps i would like to suggest. Lets have transparency, make it clear to consumers in their monthly statement how much of their car purchases are being deducted as interchange fees. You know you have that information. You know you can provide it. Maybe if consumers knew how much their cards were costing their favorite restaurants and retailers, they would use less costly cards. Second, lets stop the practice of charging swipe fees on the part of the transaction amount that is sales tax. Thats a slight tax on top of a sales tax give the consumers a break. Lets stop the exclusivity deals where bees and mastercard tells banks they cant use any other network on the cards. Lets give merchants a choice of car Network Options on each swipe in each online sales. But make sure that someone beside the dominant network plays a role in setting Security Standards for cards. Security innovators and startups are being shut out of the current system. Lets reduce Inflationary Pressure by preventing network fixed by fees of being jacked up to unreasonable levels. We have a lot to talk about today we are joined by distinguished panel. I thank you for joining them in the spirit of discussion. Let me turn to senator grassley. First of all, mister chairman, thank you for holding this hearing. Thank you for working with us on the side of the aisle to make sure that the interest of all stakeholders are taken into consideration. And are particularly want to thank you for including Financial Institutions in the panel. Interstate slight fees sees the amount of money merchants except in using a debit or credit card. These fees vary depending on many factors. And general, and up being between one to 3 of fortresses. I just learned, including sales tax. A great focus has been paid to these fees as more and more consumers use credit and debit card 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 card for purchases. These businesses want to give their customers the option to pay using different methods, but that can be difficult. Fees are eating into already tight margins, especially for Small Business owners. These fees may then be passed along 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 and 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. 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 of the credit card market. I look forward to hearing whether these rates reflect Market Forces. I think that one a subject like this comes up, particularly at the time of high inflation, thats a factor that brings attention to a lot of the expenditures that people might feel are unnecessary. It seems like every industry, including merchants and banks, have been blamed by the president for inflation. The blame game doesnt work as President Biden spends trillions of dollars of money as fast as could be spent. A liberal wish list, even warning about inflation. Earlier this month, a bureau of labor statistics reported the 12 month increase of inflation for march was percent year over year. This was the largest increase in over 40 years. All of this obscure is the actual rising costs that i winds have been hit with in the midwest. The price of ground beef 24 and a half percent off. Bacon, 26 up. Pork chops, 23 . Chicken, 31 . Eggs, 22 . These are not luxury items. But absolute necessities for families dinner tables. These staggering increases are negatively impacting all americans. We must get them under control. That is not by spending trillions more that is being proposed. I yield. Thank you, senator. We have six witnesses, thank them for joining us. Im going to give a short introduction to each before they are recognized. First witness is Laura Shapira karet. She is chair and ceo of giant eagle, a Supermarket Chain headquartered in pittsburgh. 470 locations throughout pennsylvania, ohio, West Virginia and indiana. She served as ceo of giant eagle since 2012. Previously served as the Vice President , chief strategist officer and senior Vice President of marketing. She worked for giant eagle since 2000, has a bachelors degree from amherst. Glad to have you here. Second witness, bill she. He is responsible for strategic initiatives. Previously served as visas president of europe, north america and latin america. He helped lead the companys 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. The next witness is linda kirkpatrick, president of north america for mastercard. She oversees mastercards operations and customer facing activities in the u. S. And canada, shes been with mastercard since 1997, and she previously served as leadership role involving investment relations, u. S. Strategy and communication, u. S. Issuers and global rules and standards, compliance programs and dispute resolution management. A degree from manhattan ville college. Thank you for joining us. Next witness is ed mierzwinkski. Did i get it right . That is because i represent chicago. He is the senior director from the federal Consumer Program at the u. S. Public Interest Research group known as pirg. Oversees the federal Consumer Program, helps to lead National Efforts to improve Consumer Credit reporting laws, identity theft, protections, product safety regulations and more. Cofounder of the americans for financial reform, received his undergraduate degree and masters degree from the university of connecticut. Senator blumenthal, take notice. Our next witness is charles kim, executive Vice President and chief Financial Officer of Commerce Bank shares all financial the Company Strategic planning, competing operations, consumer card business. Hes been with Commerce Bank, he received his undergraduate and be eight degrees from Washington University in st. Louis. Final witness is doug kantor. Since 2021, mr. Kanter served at the general counsel for National Association of Convenience Stores. Previously practiced law at stepped o and johnson, general counsel to the Merchant Payments Coalition among other organizations. His career he worked as deputy chief of staff at the u. S. Department of housing and development. And as a Public School teacher. Received his b. A. From the university of virginia, his jay di from yale law school. Again, thanks to all the witnesses for being here. It is customary in this committee for us to ask you to take an oath to tell the truth. If you get all please stand and raise your right hand. Given the testimony youre about to give before the committee will be the truth, the whole, truth and nothing but the truth, help you god . Let the record reflect that all the witnesses answered in the affirmative. And now gives them permission to proceed. Were going to start with miss karet. Chairman durbin, Ranking Member grassley and members of the committee. I am laura karet, ceo executive chair of giant eagle. One of the nations most largest format food 34,000 team members operating more than 470 corporate and independently owned and operated store locations throughout five midwest states, including pennsylvania and ohio. On april 22nd of this year, with no negotiation or threat of competition constraining them, visa and master card imposed a fee increase that will cost giant eagle one point 3 million annually. I appreciate the opportunity to talk to today about the impact of swipe fees on our business. Im also proud to serve as vice chair of an f and i, Food Industry association, fmi works with the entire Food Industry to advance a safer, healthier and more efficient safety food supply chain. Fmi membership includes 1000 supermarket Member Companies that collectively operate 33,000 food retail outlets and employ 6 million workers. Our industry historically operates on razor thin margins of one to 2 . We operate in a highly competitive market and as inflation has driven prices higher, our customers have become conscious of how they are spending their money driving down profits. There are three points id like to me today. First, giant eagle swipe fees have materially increased overtime. The april 22nd the unilateral increase will only extirpate this problem. These and mastercard control 85 of the market, on april 22nd of this year, both visa and mastercard increase the fees retailers pay and they also created new categories of fees. Every bank that issues credit and debit cards adopted these fees without deviation or exception. In my estimation, this cannot possibly comply with the letter or the spirit of our nations antitrust laws. This latest price increase fits the pattern we have seen for years. Giant eagle has been paying higher and higher payment fee costs. Electronic tender sales make up 82 of our Sales Transactions for a company. Of the 82 through electronic tender, 37 of the total sales are visa and mastercard. When you look at the total card processing fees, these and mastercard make up over 62 of those fees. Over the past four years, visa and mastercard fees have grown from 57 of our total fees to 62 of our total fees while at the same time visa and mastercard sales as a percentage of total 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 for our Customers Using the supplemental nutrition assistant, snap, e t cards. Its interesting to note that the snap electronic transactions are completed securely without visa or mastercard and without occurring any swipe fees. It is hard for us to understand why snap ebt cards could but bees and mastercard used it as an avenue to raise prices. Second, many millions of customers suffer one swipe fees increase. Because of the unilateral fee increases, fees and mastercard my company and my customers will push pin additional 1. 3 million in swipe fees. This fee increase came on the heels of visa reporting on its march 22nd, 2022, quarterly financials. The profit