ICYMI: Study Confirms Durbin-Marshall, State Credit Card Mandates Hurt Community Banks, Credit Unions, Consumers

WASHINGTON, DC — A new study from the University of Miami’s School of Finance offers yet further confirmation that proposed mandates in the Durbin Marshall Credit Card Bill, as well as similar state-level interchange legislation, would reduce revenue and increase costs for community banks and credit unions, despite so-called exemptions for these smaller financial institutions.

The report concludes, “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.”

The full report, titled “Why the Credit Card Competition Act (CCCA) and Similar State Bills Will Hurt Small Financial Institutions,” is available here.

The report’s author, Indraneel Chakraborty, also published an op-ed outlining his findings in Real Clear Markets. In it, he writes, “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 … We should all want a competitive, fair, and innovative payments system, and the happy news here is that we already have it. The CCCA and its state-level cousins will not improve competition. Instead, these laws will shrink the ranks of community banks, reduce access to credit for everyday Americans, and hand even more power to the nation’s financial giants.”

The full op-ed is available here.

Electronic Payments Coalition Executive Chairman Richard Hunt said:

“The study confirms what many local institutions have been saying: the proposed credit card mandates are a bad deal for local communities. Supporters of the Dubin-Marshall credit card mandates do not understand how our globally connected, safe, secure payments system works. The so-called exemptions in the bill are meaningless lip service.

“This is why community banks and credit unions in every state have opposed this bill. Not only would the mandates rob local institutions of revenue used to serve their communities, but the mandates would also drive up the costs of banking services for customers – many in rural or LMI areas.

“The report also finds the effort to enact new mandates on Americans’ credit cards at the state level would have equally as devastating effects on Main Street financial institutions, which could force community banks to consolidate or force their customers to turn to large institutions for these cost-intensive services.”