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Driven by confluence of recession-induced changes, 2010 brings a perfect storm to the card industry: deteriorated credit quality, consumer credit pullback, shrinking credit card portfolios, and sweeping regulatory change. The CARD Act and the Dodd-Frank Act are reshaping both ends of the consumer banking relationship, as industry participants retool their consumer card and banking strategies, and as consumers adapt their banking and card preferences, attitudes and usage patterns as the recession continues.

Packaged Facts' Regulatory Change and The New Consumer Card and Banking Relationship is necessary reading for industry participants navigating the effect these sweeping regulations are having on their credit card, debit card, gift card and consumer banking strategies. In emphasizing a trend-forward philosophy, the report also assists in viewing the impact of these regulations into 2011 and 2012.

The report breaks down relevant regulations and their impact on the market, in part by trending important industry metrics (such as interest rates, fees, and penalties) in detail. To help gauge the effect and future ramifications on the consumer, Packaged Facts conducts "Regulatory Impact and Trend Forecasting" on three groups significantly affected by the regulations: Echo Boomers, The Affluent, and The Debt-Burdened. "Regulatory Response and Strategy Profiles" of the top 10 card issuers help gauge industry responses and strategies.

Additional Information

Market Insights: A Selection From The Report

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Debt service ratios peak at onset of 2008 and decline thereafter

In the chart below, Packaged Facts highlights three other metrics with which to assess consumer debt:

• The household debt service ratio (DSR) is an estimate of the ratio of debt payments to disposable personal income. Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt.
• The financial obligations ratio (FOR) adds the following additional debt payments:
  automobile lease payments, rental payments on tenant-occupied property,homeowners'insurance,and property tax payments to the debt service ratio.
• The homeowner mortgage FOR includes payments on mortgage debt, homeowners'insurance, and property taxes.

Analysis

Each of these metrics peaked during Q1 2008, the first full quarter of recession, and have since fallen significantly, as consumers either pay down debt, walk away from debt, are...

FDIC proposal foretells more regulation, reduced fee income

In a Financial Institution Letter (FIL-47-2010, August 11, 2010), the FDIC proposed a raft of guidelines related to overdraft payment programs that we believe, if enacted, could further restrict current banking revenue streams. Below, Packaged Facts highlights key phrases in the language for effect.

The FDIC reminded institutions to:

• Provide clear and meaningful disclosures and other communications about overdraft payment programs, features and options; and
• Demonstrate compliance with new overdraft fee disclosure requirements and, upon the effective date, new regulations that mandate providing a notice and reasonable opportunity for customers to affirmatively choose fee-based overdraft coverage of ATM withdrawals and one-time point-of-sale debit card transactions.

In addition, the FDIC added guidelines limiting th...

In the News

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New York, December 6, 2010 — Driven by a confluence of recession-induced changes, 2010 brings a perfect storm to the consumer banking industry: deteriorated credit quality, consumer credit pullback, shrinking credit card portfolios, and sweeping regulations imperiling tens of billions of dollars in revenue, according to Regulatory Change and The New Consumer Card and Banking Relationship by market research publisher Packaged Facts.

These consumer banking changes are being driven by three key regulations: the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the CARD Act); Regulation E (Reg E), revised by the Federal Reserve; and the Durbin Amendment, which addresses debit interchange as a part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The ramifications of the CARD Act on banking practices and revenue have been seismic, as the new consumer protections carve deeply into not only card-based banking revenue but also the structure of the card programs themselves. Because the regulations come at a time when consumer spending and debt levels have reached precarious levels, the effect has been magnified. However, strategies have been deployed to potentially recoup losses. These include some banks returning to or raising annual fees, and experimenting with tiered fee structures tied to different levels of card rewards and benefits.

Consumer overdraft protection is a lynchpin of consumer banking revenue, with some estimates of overdraft fee revenue reaching almost $40 billion per year. However, the changes to Reg E put a significant chunk of revenue generated by overdraft fees at risk. These recent amendments require that consumers affirmatively consent before institutions may charge overdraft fees for ATM and one-time debit transactions and place restrictions on gift cards.

Meanwhile, potential losses stemming from the Durbin Amendment are enormous. Packaged Facts’ analysis of financial institution data from the Federal Financial Institutions Examination Council indicates that total debit and credit card interchange potentially exceeds $70 billion. Bank of America generated more than $2 billion in debit interchange fee revenue during third quarter 2010 alone. In the end, how much is at stake will depend largely on how the Federal Reserve decides to interpret the "reasonable and proportional" provision.

"Ultimately, the effect these regulations have on consumers will determine the bottom line. Thankfully for the industry, we at Packaged Facts predict some key consumer behavioral trends will soften the blow," says Don Montuori, publisher of Packaged Facts.

Despite increasing distrust of banks, consumers continue to shift their payment preferences toward electronic payments. Packaged Facts analysis of Experian Simmons National Consumer Study data reveals that 53% of consumers in Spring 2010 said they often prefer cash to pay for the things they buy, a decline of seven percentage points in six years. And while overall credit card engagement has fallen during the recession, in a boon to the industry, among consumers who have used their cards in the past month, the percentage who do so at least 20 times a month has increased. Meanwhile, Packaged Facts predicts that the affluent and young adult (age 18-24) demographics will influence the impact of consumer banking regulations going forward.

Regulatory Change and The New Consumer Card and Banking Relationship is necessary reading for industry participants navigating the effects sweeping regulations are having on their credit card, debit card, gift card and consumer banking strategies. In emphasizing a trend-forward philosophy, the report also assists in viewing the impact of these regulations into 2011 and 2012. The report breaks down relevant regulations and their impact on the market, in part by trending important industry metrics (such as interest rates, fees, and penalties) in detail. To help gauge the effect and future ramifications on the consumer, Packaged Facts conducts "Regulatory Impact and Trend Forecasting" on three groups significantly affected by the regulations: Echo Boomers, The Affluent, and The Debt-Burdened.

About Packaged Facts - Packaged Facts, a division of MarketResearch.com, publishes market intelligence on a wide range of consumer market topics, including consumer goods and retailing, foods and beverages, demographics, pet products and services, and financial products. Packaged Facts also offers a full range of custom research services.

Additional Materials

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