MIAMI–A new study has found that legislation at both that federal and state levels that seek to reduce interchange fees would “significantly reduce” revenue for credit unions and community banks and “concurrently reduce access to credit in smaller markets across the United States, disproportionately affecting low-income households.”

The study, titled, “Why the Credit Card Competition Act (CCCA) and Similar State Bills Will Hurt Small Financial Institutions, published by Indraneel Chakraborty of the University of Miami, cited the affects of 2010’s Durbin Amendment—which capped interchange fees on debit cards—and which led to credit cards and community banks seeing their “processing costs increase precipitously.”

“It led to a reduction in access to credit for millions of Americans and an increase in the consolidation of community banks,” the study states.

It further suggests the Credit Card Competition Act, which is again sponsored by Sen. Richard Durbin (D-IL) and which he has said he will introduce in the current Congress—”would give the largest merchants significantly more bargaining power when negotiating their interchange fees—at the expense of community banks—distorting the market.” 

“Smaller institutions without market power will effectively lose money on each transaction, reducing their viability and thereby jeopardizing credit access in the communities they serve,” the study goes on to say.

What State Bills Would Do

At the state level where, as the CU Daily has reported, there are numerous interchange bills in various states of progress, and tthe study suggests the proposals to exempt sales taxes and tips from interchange fees on credit cards would have a similar effect as the CCCA.

“Smaller financial institutions would see their interchange revenue reduced significantly,” according to the study. “We estimate that such an exemption would reduce revenue for community banks and credit unions by nearly $1.6 billion per annum. 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.”

Little Benefit from Carve-Outs

The study argues the “carve-outs” in both federal and state legislation for smaller institutions would have only “slight” benefit, since “these institutions typically partner with larger institutions to operate credit card programs.”

“The loss of revenue to smaller financial institutions–which tend to operate in smaller markets–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,” the study states. 

The study can be found here.