The American Bankers Association (ABA) has announced that legislation aimed at reducing credit card interchange fees could negatively impact community banks and limit access to credit. This announcement was made in a recent report.
According to research by Indraneel Chakraborty, Chair of the Finance Department at the University of Miami, bills such as the Credit Card Competition Act (CCCA) and similar state-level initiatives would significantly reduce revenue for community banks and credit unions. Chakraborty indicates that this reduction is expected to lead to decreased access to credit in smaller markets across the United States, disproportionately affecting low-income households. He emphasizes that these legislative efforts, while intended to lower costs for consumers, may inadvertently harm the communities they aim to help by undermining the financial institutions serving them.
Chakraborty's research estimates that exempting sales taxes and tips from interchange fees on credit card transactions would reduce revenue for community banks and credit unions by nearly $1.6 billion annually. This estimate assumes a nationwide implementation of such exemptions would decrease total revenue by approximately $10.5 billion, with community banks and credit unions holding a 15% share of the consumer lending market. The significant financial impact on these institutions could lead to a decrease in the availability of credit for consumers, particularly in underserved areas.
The ABA, along with other plaintiffs, has filed a lawsuit challenging the Illinois Interchange Fee Prohibition Act (IFPA), which prohibits banks and other entities from charging or receiving interchange fees on portions of debit or credit card transactions attributable to tax or gratuity. The plaintiffs argue that the IFPA violates multiple federal statutes, including the National Bank Act and the Federal Credit Union Act. A federal judge granted a preliminary injunction against enforcing the law for national banks and federal savings associations, recognizing that federal law likely preempts state law in these cases.
The ABA is a trade association representing banks of all sizes across the United States. Founded in 1875, it provides its members with advocacy, education, and resources to help them better serve their customers and communities. The association plays a significant role in shaping banking policy and promoting industry interests at both federal and state levels.