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Study Released On Economic Effects Of Fed Interchange Proposal

Posted on 3/2/2011

An academic study released last week on the Federal Reserve's interchange proposal found that the proposal would "impose direct, immediate, and certain harm on consumers, especially lower-income consumers, and small businesses that use checking accounts."

The study found that the proposal would eliminate approximately $33 billion to $38 billion in revenue for banks and credit unions in its first two years, which would "dramatically reduce the profitability of checking accounts that banks and credit unions provide to consumers and small businesses." The institutions in turn would increase fees on checking accounts, related debit cards, and other services, and would likely modify existing account features, according to the report.

"These changes could include limiting the use of debit cards for payment in situations such as high-value transactions that impose high levels of fraud and other risks on the banks and credit unions, or charging for cash back at the point of sale," the study said.

The study was 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. To view the study visit:

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