Speaker 1: Hello, and welcome to the Votes and Verdicts podcast, hosted
Speaker 1: by the litigation and policy team at Bloomberg Intelligence. We
Speaker 1: are the investment research platform at Bloomberg LP. This podcast
Speaker 1: series examines the intersection of business policy and law. I'm
Speaker 1: Nathan Dean, an analysts with Bloomberg Intelligence covering financials policy.
Speaker 2: And my name is Elliot Stein, and I'm an analyst
Speaker 2: with Bloomberg Intelligence covering financials litigation.
Speaker 1: So today's episode of Votes and Verdicts will focus on
Speaker 1: one issue that may have heard of if you've flown
Speaker 1: through the airport lately, or you had your favorite YouTube
Speaker 1: v Locker or Instagram influencer opine on it. We're talking
Speaker 1: about the Credit Card Competition Act, co sponsored by Senator
Speaker 1: Dick Durbin of Illinois. Elliott Stein and I had a
Speaker 1: chance to speak with the Senator about the bill, why
Speaker 1: it was needed, and his response to the criticism that
Speaker 1: the credit card reward programs would disappear if the bill
Speaker 1: were to become law. Before we do that, Elliot and
Speaker 1: I would like to just take a few minutes to
Speaker 1: talk about the bill and where the history of it is.
Speaker 2: Yeah, So, Nathan, why don't you know before we get
Speaker 2: into Senator Durbin's Q and a portion of this, why
Speaker 2: don't you tell us you know where we are with
Speaker 2: the bill, what the history is, and what the current
Speaker 2: status is.
Speaker 3: Yeah.
Speaker 1: So this is called the Credit Card Competition Act and
Speaker 1: was sponsored, are introduced by Senator Durbin on June seventh,
Speaker 1: twenty twenty three, and is co sponsored by Republican Senator
Speaker 1: Roger Marshall of Kansas. So this is a bipartisan bill
Speaker 1: and it has four co sponsors, two Democrats and two Republicans. Now,
Speaker 1: this bill would require the largest credit card issuing financial institutions,
Speaker 1: So essentially, those banks that have one hundred billion in
Speaker 1: asset up to or we require them to enable at
Speaker 1: least two credit card networks to be used on their
Speaker 1: credit cards instead of just one. So, for example, right now,
Speaker 1: eighty percent or eighty percent plus of the market is
Speaker 1: dominated by Visa and MasterCards. This bill would require a
Speaker 1: bank to offer their merchant a network of Visa plus
Speaker 1: something else or MasterCard plus something else. That something else
Speaker 1: could be discover it could be American Express, but under
Speaker 1: the bill language, it cannot be just both Visa and MasterCard.
Speaker 2: And I know there's a lot of incentives associated with
Speaker 2: this bill, how exactly would those work?
Speaker 1: So, according to the bill summary and the bill text,
Speaker 1: bank networks would have to have the incentive, or would
Speaker 1: bank networks would have the incentive to hold down merchant
Speaker 1: fees in order to incentivive merchants to choose routing transactions
Speaker 1: over network instead of other ones. The idea here is
Speaker 1: more competition equals lower fees, equals lower fees than for
Speaker 1: the consumer. This is very similar to what Senator Durbin
Speaker 1: did back in twenty ten and twenty eleven with the
Speaker 1: Durban Amendment on the Debit card interchange fee Proposal and
Speaker 1: provision and regulation that he sponsored them.
Speaker 2: And what about rewards programs? I know there's been concern
Speaker 2: about those. Do you think there's any risk to them?
Speaker 1: Yeah, So this is where you know, this issue has
Speaker 1: become more topical. So what I just said before that
Speaker 1: is from the bill summary in the bill text that
Speaker 1: the idea here is that more competition equals lower fees
Speaker 1: for the merchant and then lower fees for the consumer.
Speaker 1: And the banks and the airline industries have countered back
Speaker 1: and said that's just not going to be the case.
Speaker 1: You know, as you will hear from Senator Durbin a
Speaker 1: little bit later in terms of his response. But these
Speaker 1: credit card programs, airlines, YouTube blockers, bloggers, even the points
Speaker 1: guy have countered that if this bill were to become law,
Speaker 1: reward programs with credit cards could be at risk. And
Speaker 1: you'll see again, you'll hear Senator Durbin's response to that
Speaker 1: point shortly. But we're talking about a bill that has
Speaker 1: pitted the retailers and the consumer advocates versus banks and airlines,
Speaker 1: and that it's just something you've rarely ever see in Washington.
Speaker 2: Yeah, that's quite the battle royale. All right, So this
Speaker 2: bill becomes law, what happens next?
Speaker 1: So if this bill were to come law, the next
Speaker 1: step would be for the Federal Reserve to issue a
Speaker 1: proposal implement the regulation. This is how it works in Washington.
Speaker 1: So Congress passes the law, they say, here's what the
Speaker 1: law is at the one hundred thousand foot level. Then
Speaker 1: the Federal Reserve has to go forward and figure out, okay,
Speaker 1: how does the law work at the five foot level.
Speaker 1: So the legislation will say the Federal Reserve must issue
Speaker 1: a rule within a certain amount of time. But from
Speaker 1: the fedce perspective, it could take a year, if not longer.
Speaker 1: For example, when the Dot Frank Act passed the provision
Speaker 1: known as the Durban Amendment, they did this on July
Speaker 1: twenty first, twenty ten, which required the Fed to limit
Speaker 1: fees for charge to retailers for debit card processing. The
Speaker 1: Federal Reserve didn't issue its final regulation until June twenty ninth,
Speaker 1: twenty eleven, and that was extremely fast. In fact, the
Speaker 1: Federal Reserve is currently going through a proposal to change
Speaker 1: that Urban Amendment provision from twenty eleven, and they're probably
Speaker 1: going to take it just about a year or under
Speaker 1: a year to do that. So if this bill were
Speaker 1: to come into law, and let's say if it happens
Speaker 1: either this year or next year, you're probably looking twelve
Speaker 1: to eighteen months for the regulation to come out and
Speaker 1: then subsequently compliance period after that. So this was a
Speaker 1: little bit about the bill and a little bit more
Speaker 1: about the understanding. So without any further delay, let's get
Speaker 1: into the discussion that Ellie and I had with Senator derban.
Speaker 3: So.
Speaker 1: Our guest today is Senator Dick Durban of Illinois, who
Speaker 1: I as a native of Chicago and have followed ever
Speaker 1: since he took his seat in the Senate over the
Speaker 1: victory over Al Salve in nineteen ninety six. You know,
Speaker 1: Senator durban is also chairman of the Senate Judiciary Committee
Speaker 1: and also serves as the Democratic Whip. Senator Durbin, thank
Speaker 1: you very much for agreeing to talk to us today
Speaker 1: and welcome to the votes.
Speaker 3: In Verdiccks podcast with you great. Thank you.
Speaker 1: So, while we would love to talk about a number
Speaker 1: of issues with you, there's one that is near and
Speaker 1: dear to our hearts, and that is the Credit Card
Speaker 1: Competition Act, which you've worked on with Senator Roger Marshall
Speaker 1: and a number of other co sponsors in the Senate.
Speaker 1: To listeners that are not aware of, the short summary
Speaker 1: states is that the Credit Card Competition Act would enhance
Speaker 1: credit card competition and choice in order to reduce successive
Speaker 1: credit card fees. It would require the largest credit card
Speaker 1: issuing financial institutions in the country, those with assets over
Speaker 1: one hundred billion, to enable at least two to credit
Speaker 1: card networks to be used on their credit cards instead
Speaker 1: of just one, and at least one of those networks
Speaker 1: must be network other than Visa or the MasterCard.
Speaker 3: Do all believe.
Speaker 1: So to start off with Senator Derbin, why does America
Speaker 1: need this bill?
Speaker 4: Competition? We believe in the free market system, and we
Speaker 4: believe competition is a key element. Unfortunately, you'll find retailers
Speaker 4: all across the United States who are stuck with a
Speaker 4: swipe fee or interchange fee. They give nothing to say
Speaker 4: about take it or leave it. If you want to
Speaker 4: use Visa and MasterCard, you have to pay the fee.
Speaker 4: So we want to have some competition for that business.
Speaker 4: Let's have at least one other network for retailers to
Speaker 4: choose from.
Speaker 2: So, Senator, you know, one of the ideas, of course,
Speaker 2: is that more competition will bring about lower fees and
Speaker 2: that those savings will then be passed on to the
Speaker 2: consumer from the retailers.
Speaker 3: You know.
Speaker 2: I guess one question is, how do you ensure that
Speaker 2: retailers do indeed as those savings on to consumers, you know?
Speaker 2: And I asked that because the banking industry, of course,
Speaker 2: has contested and said that retailers would likely you know,
Speaker 2: pocket most of those savings for themselves to their own benefit,
Speaker 2: you know, So why is the banking industry wrong about that?
Speaker 2: And then along similar lines, I guess the banking industry
Speaker 2: has also argued that the law would essentially weaken cybersecurity
Speaker 2: protections and potentially reduce access to credit as well. What
Speaker 2: do you say about those criticisms as well.
Speaker 4: I've been through this before with debit cards more than
Speaker 4: ten years ago. There's a long litany of horror stories
Speaker 4: that the banks and credit card companies want us tell us,
Speaker 4: and frankly, they aren't backed up. In fact, here's the
Speaker 4: bottom line. Most retailers are in a low percentage recovery situation.
Speaker 4: They're in competition. They've got to be able to compete
Speaker 4: in the market. If they have a benefit to one
Speaker 4: of the biggest charges that they face as retailers, I
Speaker 4: believe the consumers are going to benefit from it. There
Speaker 4: have been some analyses of what happened in the debit
Speaker 4: card market as a result of the first round of
Speaker 4: the Turbine Amendment, and there's been clear evidence that the
Speaker 4: consumer was a winner.
Speaker 3: You know.
Speaker 1: So we've seen criticism not only from the banks, but
Speaker 1: also from the airlines. You know, if anybody's flown through
Speaker 1: LaGuardia or Reagan or O'Hare, you know they've probably seen
Speaker 1: the advertisements that we should be in opposition to this bill.
Speaker 1: In fact, I've seen YouTube travel bloggers tell me that
Speaker 1: on the Instagram circuit that I should be in opposition
Speaker 1: to this bill, all under the idea that if this
Speaker 1: bill goes forward, reward programs with credit cards or the
Speaker 1: credit card programs are going to disappear. Is that a
Speaker 1: valid concern? Do you think that would happen?
Speaker 4: No, it absolutely is not. Let's consider two interesting things.
Speaker 4: The first is that most people would be surprised to
Speaker 4: know that at least two of the major airlines have
Speaker 4: more profit coming off of their branded credit cards, and
Speaker 4: they do off of aviation operations. It turns out their
Speaker 4: banks primarily with airplanes. And if you're a passenger, I
Speaker 4: just went through this earlier this week, you sit down,
Speaker 4: you buckle up, they give you the key safety instructions,
Speaker 4: and then they start peddling their credit cards on the airplanes.
Speaker 4: The poor flight attendants who had better things to do.
Speaker 4: We're working up and down the aisle with brochures trying
Speaker 4: to get people to sign up for their credit cards.
Speaker 4: Why because for United and American, for example, they make
Speaker 4: more money off their credit cards than they do off
Speaker 4: of flying airplanes. And that's a surprise to most. The
Speaker 4: second thing is in Europe, where these interchange fees and
Speaker 4: swipe fees have been closely regulated and are much lower
Speaker 4: than the United States, they still offer the same frequent
Speaker 4: flyer plans and the same reward programs. So I think
Speaker 4: this is a phony issue.
Speaker 1: Yeah, you know, we saw Senator Marshall try to insert
Speaker 1: this bill into the FA talking about airlines into the
Speaker 1: FA Reauthorization Bill, and we're recording this on May fifteen,
Speaker 1: so this was earlier in the month.
Speaker 3: Will you and.
Speaker 1: Senator Marshall try again this year to pass the bill,
Speaker 1: either as a standalone package or as potentially trying to
Speaker 1: attach it to say the Farm bill or a funding
Speaker 1: bill or anything like that, or is it going to
Speaker 1: have to wait until after the November election.
Speaker 4: Well, you know most of your listeners will as well.
Speaker 4: I'm a Democrat from Illinois, Roger Marshall up or Republican
Speaker 4: from Kansas. But he is my partner in this effort,
Speaker 4: and he is very aggressive on it, and he is
Speaker 4: looking for the first opportunity to bring in to the floor,
Speaker 4: and I want to help him do it. This FAA
Speaker 4: bill had a deadline on it. We didn't want to
Speaker 4: jeopardize airlines safety in any way, and they reached the department,
Speaker 4: we couldn't push it any further, but we're looking for
Speaker 4: any and all opportunities to bring us to the floor.
Speaker 1: Do you plan to just a quick fall up on that?
Speaker 1: Do you plan to have any additional hearings if that's
Speaker 1: feasible on the bill? I know that in the past
Speaker 1: you've tried to under the Senate Judiciary to bring in
Speaker 1: the airline CEOs. Is that something news You're gonna try again.
Speaker 4: We continue to try to bring them in. Some are cooperative,
Speaker 4: some or not. We'd like to bring them all in
Speaker 4: and let them tell their side of the story and
Speaker 4: ask a few questions.
Speaker 2: All right, Senator, that's it for the substance of questions.
Speaker 2: Now we move on to the fun grab bag question,
Speaker 2: which we ask of all guests, including senators. If you
Speaker 2: were stranded on a desert island, what are three pieces
Speaker 2: of music that you would want to take with you?
Speaker 2: And it could be an album or a song, you know,
Speaker 2: it's up to you.
Speaker 4: Well, that's a hard question for me because I like
Speaker 4: a lot of different music, but I would say the
Speaker 4: top ones if I'm just stranded with three Graceland by
Speaker 4: Paul Simon, the best of James Taylor, and Collected Symphonies
Speaker 4: of great Beethoven.
Speaker 3: That's an excellent choice.
Speaker 2: Yeah, good combination. That was really interesting what the Senator
Speaker 2: said about his musical choices. I was particularly struck that
Speaker 2: he chose Paul Simon because coincidentally, Paul Simon, not the
Speaker 2: musician Paul Simon, but the former Senator Paul Simon is
Speaker 2: who Senator Durbin replaced in the United States Senate Paul Simon,
Speaker 2: as Nathan you know, as a native of Illinois, was
Speaker 2: a senator from Illinois. So I thought that was interesting.
Speaker 2: We should have asked the Senator why why he chose,
Speaker 2: you know, Paul Simon, and he said, Paul Simon's Graceland,
Speaker 2: which his great album.
Speaker 4: Yeah.
Speaker 1: And you know, as like you mentioned, I grew for
Speaker 1: the listeners. I grew up in Illinois, and so I
Speaker 1: really wanted to help get his help in sponsoring legislation
Speaker 1: requiring Portillo's or Buena Beef to require an Italian beef
Speaker 1: shop to be set up in the District of Columbia
Speaker 1: because if you ever go to Chicago, highly recommend the
Speaker 1: Italian beef sandwich. So much better than Philly cheese steaks.
Speaker 1: I'll say that to the day I die. But again,
Speaker 1: you know, didn't have the chance to do that, So
Speaker 1: maybe on the next time.
Speaker 2: Yeah, we'll have to have him back and pick a
Speaker 2: span some more about Paul Simon the Senator and Paul
Speaker 2: Simon musician, and I guess your culinary choices as well.
Speaker 2: All right, so let's get back to financials content, Nathan,
Speaker 2: what's going on with the House Financial Services Committee?
Speaker 1: Yeah, so we're recording this on May fifteenth, and as
Speaker 1: we record this right now, the House Financial Services Committee
Speaker 1: and the Senate Banking Unity tomorrow and May sixteenth are
Speaker 1: having a hearing from the Federal Regulators.
Speaker 3: This is the Banking Prededitial Regulators.
Speaker 1: This is Michael Barr, the FED Vice Chairman from the
Speaker 1: Federal Reserve, the acting contour over the Currency Michael Sue
Speaker 1: and the FDIC Chairman, Martin Grueberg. So there's really three
Speaker 1: things that are happening in these hearings now. The first
Speaker 1: one is we'll FDIC Chairman Martin Grumberg keep his job
Speaker 1: because in the news recently, there has been a report
Speaker 1: that has come out about highlighting the toxes of culture
Speaker 1: over at the FDIC, and Martin Gruenberg essentially is going
Speaker 1: through the ringer right now as we speak, talking about
Speaker 1: how all these changes are going to come about over
Speaker 1: at the FDIC in response to that report. This is
Speaker 1: a very difficult time for him. He's not getting a
Speaker 1: ton of support from the Democrats as I've been following
Speaker 1: the hearing, but you're also not seeing a ton of
Speaker 1: Democrats pushing.
Speaker 3: For his resignation either.
Speaker 1: There is someone in a challenge at the moment, because
Speaker 1: if the FDIC chairman were to step down, the FDIC
Speaker 1: then becomes a locked entity of being two and two,
Speaker 1: and the Republican Vice Chairman would be put in place
Speaker 1: and in charge until the Senate were to be able
Speaker 1: to confirm a new FDIC chairman, which probably wouldn't be
Speaker 1: able to happen this year anyway. So if Chairman Greenberg
Speaker 1: steps down, things like the Boso three endgame are going
Speaker 1: to be at risk. But as of right now, it
Speaker 1: looks like he's still able to keep his job.
Speaker 3: Now.
Speaker 1: The Bosle three end game is getting a lot of
Speaker 1: intention here in the Hearings twelve as well. So Bloomberg
Speaker 1: News put out an article just last week saying that
Speaker 1: the Bozo three endgame. The regulators are aiming to finalize
Speaker 1: this by August. That is an out of consensus view.
Speaker 1: I don't think anybody in Wall Street thinks that that
Speaker 1: can happen. But right now the regulators are still proceeding.
Speaker 1: Is if that's the case. My view on it is
Speaker 1: is that until I hear from the regulators otherwise, we
Speaker 1: have to presume that the regulators do think that they
Speaker 1: can get this done by August. But the challenge here
Speaker 1: is is something called the Administrative Procedures Act, and right
Speaker 1: now the Bozo three or the FED. I'm going to
Speaker 1: use the FED because they're taking the lead on this.
Speaker 1: The FED is saying, okay, we are going to make
Speaker 1: broad immateial changes. That's their words, broad and material changes
Speaker 1: to the Federal Reserve or to the Boso three endgame.
Speaker 1: The question is, can you make broad and material changes
Speaker 1: that A they can get the rule out by August
Speaker 1: and B they can get the rule in order to
Speaker 1: pass the court so that Elliott's not writing on this
Speaker 1: a year or two from now.
Speaker 3: That's a tall challenge.
Speaker 1: And for what it's worth, the August deadline is really
Speaker 1: coming about because the Congressional Review Act, which would allow
Speaker 1: a Republican House Senate and President Trump, if he were
Speaker 1: to win in November, would allow them to overturn it
Speaker 1: if it comes out after August ninth. So the FED
Speaker 1: has a huge challenge. I don't envy their summer plans
Speaker 1: because they're going to be working late nights in order
Speaker 1: to get this out. But as of right now, I'm
Speaker 1: still presuming that the FED is going to try and
Speaker 1: get it done by August. But don't be surprised if
Speaker 1: in the next month or so they're going to say
Speaker 1: we have to actually propose this again or we're going
Speaker 1: to push it off the next year. FED Vice Chairman
Speaker 1: Michael Barr wouldn't commit to any of this in the hearing.
Speaker 1: He's saying flat out, we're still working through the process
Speaker 1: and we haven't made a decision, but we have committed
Speaker 1: to making broad material changes.
Speaker 3: So you know, we'll see.
Speaker 1: But something equally important is what's going on with the
Speaker 1: courts at the moment and the CFPB. So, Elliott, I've
Speaker 1: just been reading a lot of headlines on the CFPB.
Speaker 1: What's going on there? Something with credit card late fees,
Speaker 1: and then there was something else with the Supreme Court,
Speaker 1: and the CFPB funding. And folks, look, I know what
Speaker 1: I'm asking. This is just a loaded question for Elliott.
Speaker 1: But you know, Elliott, if you could tell us what's
Speaker 1: going on in the CPB.
Speaker 2: Yeah, well, I would never venture to say that this
Speaker 2: stuff is more important than what you're covering. They're equally important,
Speaker 2: no doubt. So yeah, So I'll start with the Supreme Court.
Speaker 2: We're waiting for ruling on the constitutionality of the CFPB's funding.
Speaker 2: If you recall, the Fifth Circuit in New Orleans a
Speaker 2: couple of years ago held that the CFPB's funding was
Speaker 2: unconstitutional because it's not part of the congressional appropriations process.
Speaker 2: The case was argued in the Supreme Court back in October.
Speaker 2: I would say the consensus view is that the CFPB
Speaker 2: did a lot better than people expected, and I think
Speaker 2: a lot of people expect the CFPB to win in
Speaker 2: the Supreme Court. I might still be one of the
Speaker 2: outlier views on that because I still think the Supreme
Speaker 2: Court is going to hold that the CFPB's funding is unconstitutional.
Speaker 2: We're waiting the decision. It could come as soon as
Speaker 2: you know, Thursday morning, May sixteenth. Again, we're recording this
Speaker 2: on May fifteenth. So if the decision comes out, it
Speaker 2: comes out, and you know, you can say we said
Speaker 2: it here that it might come out then, but it
Speaker 2: could come out also later, you know, later in May
Speaker 2: or in June, even But that case is important has
Speaker 2: ramifications for a lot of what the CFPB does, including
Speaker 2: rules that it has proposed and enforcement actions as well.
Speaker 2: Just last week, actually on May tenth, the CFPB's credit
Speaker 2: card late fee rule was put on hold by a
Speaker 2: federal judge in Texas on the grounds that the CFPB's
Speaker 2: funding was held on constitutional by the Fifth Circuit and
Speaker 2: as a result, the rule was promulgated by an unconstitutional
Speaker 2: agency and therefore, you know, the the judge said that
Speaker 2: the challengers to the CFPB credit card late few rule
Speaker 2: were likely to win their case, and so he put
Speaker 2: the rule on hold while they continued the litigation on
Speaker 2: the merits that case. By the way, the CFPB credit
Speaker 2: card late fee rule has been one of the quirkiest
Speaker 2: procedural cases that I've ever seen. I think, you know,
Speaker 2: when the challengers brought the lawsuit in Texas, in federal
Speaker 2: court in Texas, which is in the Fifth Circuit, they
Speaker 2: anticipated that you know, they'd get a swift victory, to
Speaker 2: get the rule put on hold, you know, almost immediately,
Speaker 2: and then win on the merrits down the road. That's
Speaker 2: really not what happened. And you had a judge down there,
Speaker 2: Judge Pittman, who he's a trumpetpointee, so everyone sort of
Speaker 2: thought it'd be easy sailing for the challengers, but instead
Speaker 2: he questioned whether his court was the proper venue for
Speaker 2: the litigation, and he actually sent the case to Federal
Speaker 2: Court in Washington, d C. But it only stayed there
Speaker 2: briefly because the challengers then went to the Fifth Circuit
Speaker 2: and asked for that transfer to be va, which the
Speaker 2: Fifth Circuit did, and the case then went back to
Speaker 2: Texas before Judge Pittman, and then he granted the preliminary injunction.
Speaker 2: So the rules on hold, Nathan, is the short, short
Speaker 2: answer to the short answer to my longer answer, and
Speaker 2: we'll see where it goes from here. They still have
Speaker 2: to you know, the CFPB says that the venue still
Speaker 2: has to be decided actually, so it's possible the case
Speaker 2: moves yet again, but then it also has to be
Speaker 2: decided on the merits. But at the end of the day,
Speaker 2: I think the challengers will win. I don't think this
Speaker 2: rule is going to be revived, you know, even if
Speaker 2: it goes to a more CF three friendly lower court,
Speaker 2: you have the challengers have the Supreme Court as as
Speaker 2: a backstop, and I think they'd be skeptical of the
Speaker 2: CFPB's rule here. So that's where we are with CFPB stuff.
Speaker 1: And with that, I think we're going to wrap up
Speaker 1: this episode of Votes and Verdict. We're extremely grateful Senator
Speaker 1: Durbin for appearing on this episode. This was very informative
Speaker 1: about a very important piece of legislation that's making weights
Speaker 1: to Congress. As a reminder, you can read all of
Speaker 1: our Bloomberg intelligence research on the Bloomberg terminal at big
Speaker 1: and this podcast can be found at Apple, Spotify, and
Speaker 1: all various social media platforms. Thank you again and have
Speaker 1: a great day.