How Americans Use Their Debit Cards

NEW YORK (MainStreet) —Last September, a study conducted by Javelin Strategy and Research found that, for the first time ever, debit card spending eclipsed how much people were charging on their credit cards.

At the time, this shift in our plastic preferences, while admittedly problematic for credit card issuers, didn’t seem to bear any particular meaning for consumers other than the avoidance of more debt.  If anything, the implication that Americans were getting more responsible about how they spent their money seemed like good news.

But then the Dodd-Frank Wall Street Reform and Consumer Protection Act gave the Federal Reserve the right to impose limits on interchange fees charged every time debit cards are used, and banks, fearing a serious cut in revenue, threatened to change their policies on debit card use.

Among the more seemingly egregious threats was the rumor that several major banks, including Bank of America, Citigroup and JPMorgan Chase were looking into capping individual debit card purchases at $100. Experts now speculate that these limits, if imposed, could cause a resurgence in checks, cash or credit card use as consumers are forced to use alternate forms of payment for larger purchases. 

But would caps – or other residual changes in debit card policies – really force consumers to change their current spending habits? To find out, budgeting site Mint.com provided data to MainStreet on how its user base of 5 million people actually used their debit cards in 2010.

The numbers confirm that while debit cards are, in fact, our current payment method of choice (based on number of transactions and overall amount Mint users spent each month), their usage is already concentrated on small purchases. According to the stats, only 12.98% of all debit card transactions by Mint users in 2010 totaled more than $100 and only 8.13% of debit card transactions were more than $150.

On the other hand, a cap lower than that would be potentially problematic since the average debit card transaction amount in 2010 was $71, an amount well above the $50 limit also reportedly in consideration.

Of course, the other question is whether or not banks will actually institute these policies or if the purported changes, including some that have already been put into effect like $5 ATM fees and the abolishment of remaining debit card rewards programs, are being floated by banks as a scare tactic to get the Fed to raise the initially proposed 12-cent interchange fee.

According to Beth Robertson, Javelin’s director of payments research, the current banking climate is being characterized by a little bit of both. Robertson told MainStreet that while some rumors involve “a piece of posturing” on the part of financial institutions, consumers should expect more changes to be made to their current business models. 

Her sentiments are supported by what we’ve seen thus far. Rumors of debit card limits broke back in early March, but have yet to be instituted by any major financial institution. Debit card reward programs, conversely, have been dropping like flies since November.

But Robertson, who believes that these policy changes are actually the result of all the new regulations of the past two years, said that not all changes will be negative.  

“There is the possibility that they will sweeten incentives on their credit card programs,” Robertson said.

It seems like the prevailing winds are just more reason for consumers to ditch their debit cards altogether.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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