"Swipe" fees imposed by the Senate's Durbin Amendment will pose a "double whammy" to small banks and consumers, ultimately hurting the US economy, Adam Frisch, Morgan Stanley Equity Research, told CNBC on Wednesday.
"15-20 percent of US GDP travels over debit rails - and that's plain percentages of consumer spending - and if banks can't make money on this product anymore, there's going to be a lot of disruption there," he said.
Lower to mid-income level consumers are going to "get crushed by these fees," he went on to say, and they don't want or don't have access to credit cards.
"If you disrupt their use of debit cards, that amount of disruption will translate into spending at some point," he added.
Small banks that are less diversified than larger counterparts like JPMorgan, he said, rely more heavily on interchange revenues and higher fees would inhibit their ability to lend to consumers.
As a response, banks are going to create new products or encourage people to buy on credit, said Frisch. He is bullish on Visa and Mastercard .
"There's no reason for banks to offer a product where they don't make money," he said. "And when you take a system like payments...and you take one linchpin out, a lot of ramifications happen here."
A lobbying battle between banks and the credit card companies in Washington has been heating up since the Durbin Amendment passed in May. In an interview with CNBC last week, Alan Greenspan, the former Federal Reserve chairman, said that parts of the law would have to be reversed.
"I look at the whole series of mandates in Dodd-Frank, and I think some of them are internally contradictory," he said. "And I think we're going to find if that is the case when the regulators start to implement."
