Recent Trends in Consumer Retail Payment Services Delivered by Depository Institutions

Summary

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.