Abstract

http://ssrn.com/abstract=1769887
 
 

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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

Richard Schmalensee


Massachusetts Institute of Technology (MIT) - Sloan School of Management

February 22, 2011


Abstract:     
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

working papers series


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Date posted: February 26, 2011 ; Last revised: March 1, 2011

Suggested Citation

Evans, David S. and Litan, Robert E. and Schmalensee, Richard, Economic Analysis of the Effects of the Federal Reserve Board’s Proposed Debit Card Interchange Fee Regulations on Consumers and Small Businesses (February 22, 2011). Available at SSRN: http://ssrn.com/abstract=1769887 or http://dx.doi.org/10.2139/ssrn.1769887

Contact Information

David S. Evans (Contact Author)
University of Chicago Law School ( email )
1111 E. 60th St.
Chicago, IL 60637
United States
University College London ( email )
London WC1E OEG
United Kingdom
Global Economics Group ( email )
1400 S. Dearborn, Suite 400
Chicago, IL 60603
United States
Robert E. Litan
Ewing Marion Kauffman Foundation ( email )
4801 Rockhill Road
Kansas City, MO 64110
United States
AEI-Brookings Joint Center for Regulatory Studies
1150 17th Street, N.W.
Washington, DC 20036
United States
Richard Schmalensee
Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )
Room E62-525
Cambridge, MA 02142
United States
617-253-2957 (Phone)
617-258-6617 (Fax)
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