Legislation intended to reduce credit card interchange fees would reduce revenue for community banks and credit unions, leading to less access to credit and disproportionately harming low-income households, according to a recently published academic report.
The Credit Card Competition Act by Sens. Dick Durbin (D-Ill.) and Roger Marshall (R-Kan.) would impose new network routing mandates on financial institutions that issue credit cards. A research note by Indraneel Chakraborty, chair of the finance department at the University of Miami, said the CCCA gives the largest merchants significantly more bargaining power when negotiating their interchange fees at the expense of community banks.
At the same time, several states have proposed exempting sales taxes and tips from interchange fees on credit cards, which also fall hardest on community banks, he writes. (The American Bankers Association is among the plaintiffs in a lawsuit challenging an Illinois law banning banks and other entities from charging or receiving interchange fees on the portion of a debit or credit card transaction attributable to tax or gratuity.)
“We estimate that such an exemption would reduce revenue for community banks and credit unions by nearly $1.6 billion per annum,” Chakraborty writes. “This is because economists estimate that a nationwide implementation of such an exemption would reduce total revenue by roughly $10.5 billion, and community banks and credit unions have a 15% share of the consumer lending market.”
The loss of revenue to smaller financial institutions “means that the loss of credit from laws intended to reduce interchange fees will disproportionately affect the availability of credit in these communities and lead to a more rapid consolidation in the banking market,” he writes.
