Traditional electronic banking products include credit cards and debit cards. Debit cards are provided primarily by depository institutions (banks and credit unions), but any institution that provides checking account services may provide debit cards. Hence, the loss of fee income increases as well as other regulatory requirements may increase the difficulty of providing retail payment services at little or no cost to customers. There is congressional interest in how the costs and availability of consumer retail payments services provided primarily by depository institutions have changed following the passage of recent legislative actions, namely the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act; P.L. 111-24 ) and Section 920 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act; P.L. 111-203 ), which is known as the Durbin Amendment. Any one or all of the factors listed above that occurred after 2007 may have prompted changes in the consumer retail payment services market, making it difficult to determine which one had the greatest influence on market outcomes. This report recounts developments beginning in 2006 in the markets for credit cards and checking account services delivered primarily by depository institutions. Preliminary evidence indicates some recent segmentation of the consumer retail payments market. Customers with the ability to repay short-term loans in a timely manner or maintain sufficient deposit balances may notice little change in cost or availability of traditional retail payment services. Some depository institutions, however, are offering this market segment greater payment services characterized by less credit or nonpayment risks, such as direct deposit cash advances and prepayment cards. Given the historically and persistently low (prime) interest rate environment coupled with a decline in demand for consumer loans, banks have been looking for lending opportunities that would allow them to charge higher interest rates. Generally speaking, it is difficult to attribute outcomes in the credit card market solely to either the 2007-2009 U.S. recession or to the CARD Act, which simultaneously affected both the demand for and supply of revolving credit. Recent developments in both the cost and availability of checking account services are examined in this section because overdraft and debit card fees are tied to the delivery of this financial product to customers. In addition to higher fees, various checking account services reportedly became less available to customers as they become more costly to service. The financial services associated with serving this market segment may have one or more of the following characteristics:
the fees are required to be paid up front; the costs of a financial product, such as a short-term cash advance, are expensive relative to a loan arrangement expected to last for a year or longer; any information pertaining to customer payment history is unlikely to be reported to any credit bureau; a formal or long-term relationship with a traditional depository institution is not required to obtain alternative financial services.
Congressional interest in the performance of the credit and debit card (checking account services) markets and how recent developments are affecting customers is growing. This report discusses these developments and examines the costs and availability of consumer retail payments services, particularly those provided by depository institutions, since the recent recession and subsequent legislative actions.
Consumer retail payment services include products such as credit cards, cash advances, checking accounts, debit cards, and prepayment cards. Some depository institutions have increased fees and decreased availability of these services; many others are considering the best way to cover rising costs to provide these services without alienating customers. Recent declines in the demand for loans, a historically and persistently low interest rate environment, higher capital requirements, and the existence of potential profit opportunities in non-traditional banking markets may have motivated these reactions. In addition, passage of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act; P.L. 111-24) and Section 920 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act; P.L. 111-203), which is known as the Durbin Amendment, placed limitations on fee income for credit cards and debit cards, respectively.
Determining the extent to which one or all of these factors have influenced changes in the consumer retail payment services markets, however, is challenging. Market outcomes are often influenced by multiple simultaneous or overlapping events, thus making it difficult to attribute the reactions of financial service providers and their customers solely to any one particular factor. Any one or all of the factors listed above that occurred after 2007 may have driven changes in the costs or availability of consumer retail payment services, making it difficult to determine which one had the greatest influence on market outcomes.
Depository institutions reduced credit card loan limits during the recent recession, but those limits have since been rising. Customers with impaired credit, however, have seen increases in credit card rates and reduced access to this product. Many large depository institutions have also discontinued debit card rewards programs and "free" checking. Many small financial institutions have not increased checking account fees as aggressively, but many have increased fees on less frequently used financial services and are considering further fee increases to cover anticipated higher costs. The consumer retail payment services market may also be growing more bifurcated. For example, customers more likely to repay obligations or maintain high checking account balances may experience few changes in costs or availability of traditional payments services. At the same time, customers likely to face higher costs to use or limited access to traditional payment services may increase their usage of direct deposit cash advances and prepayment cards, as depository institutions make these options increasingly available to this market segment.