New 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. Below are key excerpts.

“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.”

…

“Both the 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 op-ed is available here.