Economic Analysis of the Effects of the Federal Reserve Board’s Proposed Debit Card Interchange Fee Regulations on Consumers and Small Businesses
David S. Evans
University of Chicago Law School; University College London; Global Economics Group
Robert E. Litan
Ewing Marion Kauffman Foundation; AEI-Brookings Joint Center for Regulatory Studies
Massachusetts Institute of Technology (MIT) - Sloan School of Management
February 22, 2011
This paper examines the impact of the reductions in interchange fees proposed by the the Federal Reserve Board on consumers and small businesses. We find that consumers and small business would face higher retail banking fees and lose valuable services as banks rationally seek to make up as much as they can for the debit interchange revenues they will lose under the Board’s proposal. The number of unbanked consumers would increase as lower-income households reduce the use of higher-priced accounts. Small businesses would lose in the first 24 months the proposed rules are in effect because of the offsetting increase in bank fees. Most of these small businesses do not accept debit cards and therefore would not have any offsetting benefits from lower interchange fees. Large retailers would receive a windfall.
Number of Pages in PDF File: 51
Keywords: Debit Cards, Interchange Fees, Financial Regulation, Durbin, Federal Reserve Board
JEL Classification: G21, G18, L51, L52
Date posted: February 26, 2011 ; Last revised: March 1, 2011
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