A recent study conducted by the University of Miami's School of Finance has analyzed the potential impact of the Durbin-Marshall Credit Card Bill and similar state-level interchange legislation on community banks and credit unions. The findings suggest that these proposed mandates could lead to reduced revenue and increased costs for smaller financial institutions, despite exemptions intended to protect them.
The report highlights that "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, disproportionately affecting low-income households."
Authored by Indraneel Chakraborty, the study is titled “Why the Credit Card Competition Act (CCCA) and Similar State Bills Will Hurt Small Financial Institutions.” Chakraborty also shared his insights in an op-ed published in Real Clear Markets.
Chakraborty references historical precedents such as the 2010 Durbin Amendment, noting, “The experience of the 2010 Durbin Amendment should serve as a warning. That policy capped interchange fees on debit cards for banks over $10 billion in assets, with an exemption for smaller banks. Yet even exempt institutions suffered: data from the Federal Reserve clearly shows that interchange revenue fell for these entities as well. Lower revenue and relatively higher costs reduced the ability of smaller financial institutions to offer affordable banking services.”
He further elaborates on potential consequences: “Both federal and state legislation would reduce credit in rural and low-income areas, where big banks have little presence and community banks fill the gap. As interchange revenue declines, small banks may be forced to retrench, lay off staff, or raise interest rates. It will also accelerate bank consolidation, reducing competition and thus defeating the explicit goal of the legislation.”
The full report is available online for those interested in exploring its detailed findings.
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