Indraneel Chakraborty, a Professor of Finance at the University of Miami, has expressed concerns over proposed legislation targeting credit card interchange fees. He said that such measures would diminish revenue for small financial institutions and restrict credit access in underserved regions. This statement was made on SSRN.
"Legislation in Congress and numerous states intended to reduce the interchange fees charged by credit cards would significantly reduce revenue for community banks and credit unions and-concomitantly-reduce access to credit in smaller markets across the United States," said Chakraborty. "disproportionately affecting low-income households."
The Credit Card Competition Act (CCCA) has been met with significant criticism from economists and financial institutions. Critics argue that the Act's provisions to lower interchange fees may lead to unintended economic consequences, including reduced revenue for banks and credit unions. This could potentially result in higher costs for consumers and diminished access to credit, particularly affecting low-income households. A report by Banking Exchange warns that the legislation could cut revenue for community banks and reduce access to credit for these households.
According to a report cited by the American Bankers Association, community banks and credit unions could face substantial revenue losses if the CCCA is implemented. The legislation could reduce revenue for these institutions by nearly $1.6 billion annually, based on an estimated $10.5 billion total revenue reduction across the industry. Community banks and credit unions hold a 15% share of the consumer lending market, which may force them to reevaluate their services and potentially limit offerings to their customers.
The Federal Reserve has indicated that reducing interchange fees may adversely affect credit availability for low-income and rural consumers in the U.S. It suggests that capping interchange rates could lead banks to discontinue their lowest-margin products, including options designed to increase financial inclusion for low- and moderate-income individuals and families. While merchants might benefit from lower processing costs, consumers could face reduced access to essential banking services.
Chakraborty is also the Department Chair at the University of Miami's Herbert Business School. He earned his Ph.D. in Finance from the Wharton School at the University of Pennsylvania in 2010, an M.S. from MIT in 2003, and a B.Tech. from IIT Guwahati in 2001, where he was awarded the President of India Gold Medal. His research interests include financial intermediation and corporate finance, focusing on how credit market competition affects employment and productivity.