Interchange Regulation Will Harm Consumers, Says New Study

A study conducted by University of Chicago Law School Lecturer David Evans, Brookings Institute Senior Fellow in Economic Studies Robert Litan, and MIT Sloan School of Management Professor Richard Schmalensee found that the proposal to regulate debit card interchage fees would “impose direct, immediate, and certain harm on consumers, especially lower-income consumers, and small businesses that use checking accounts.”

Specifically, the study concluded that:

• During the first two years, the proposed rules will eliminate $33.4-$38.6 billion of debit card interchange fee revenues for banks and credit unions. As a result, consumers and small business will face higher retail banking fees and lose valuable services as banks and credit unions seek to offset the loss of debit card interchange revenue.
• As a result of the anticipated increase in banking fees, the number of unbanked individuals will increase. As a result, many low-income individuals will have to use higher-priced alternative financial service providers, such as check-cashers.
• Small businesses will lose up to $4.2-4.8 billion in the first 24 months of the proposed rules, if implemented. Many small businesses will see an increase in bank fees and will not receive any offsetting benefit from lower debt card interchange fees because they do not accept debit cards.
• Large retailers will receive a windfall of $17.2-$19.9 billion dollars in the first 24 months of the proposed rule being in effect.

Read the paper.
See ABA's resources on fighting interchange price controls.