Report: Limiting credit card interchange fees would harm consumers

Legislation intended to reduce credit card interchange fees would lead to less access to credit and disproportionately harming low-income households because of reduced revenue for community banks and credit unions, according to a recently published academic report.

The Credit Card Competition Act by Sens. Dick Durbin (D-Ill.) and Roger Marshall (R-Kan.) would impose new network routing mandates on financial institutions that issue credit cards. A research note by Indraneel Chakraborty, chair of the finance department at the University of Miami, said the CCCA gives the largest merchants significantly more bargaining power when negotiating their interchange fees at the expense of community banks.

At the same time, several states have proposed exempting sales taxes and tips from interchange fees on credit cards, which also fall hardest on community banks, he writes.

“We estimate that such an exemption would reduce revenue for community banks and credit unions by nearly $1.6 billion per annum,” Chakraborty writes. “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.”