New Rules Will Cost Banks $25 Billion


NEW YORK (MainStreet) — Banks will lose as much as $25 billion a year in revenue thanks to new credit and debit card regulations, the Boston Consulting Group said Monday.

According to the consulting firm, the Credit Card Accountability, Responsibility and Disclosure Act, the Durbin amendment and a modification on Regulation E will collectively cost banks about 29% of the revenue they previously collected from retail transactions.

Regulation E, which governs electronic fund transfers, was modified last year to require that consumers opt in for overdraft protection instead of being enrolled by default, and is estimated to eliminate $10 billion in profits on the associated overdraft fees. The Durbin amendment, which limits debit card interchange rates, will eliminate $9 billion. The CARD Act, aimed at lowering interest rates and eliminating hidden fees, accounts for the remaining $6 billion in lost revenue.

To recoup the lost cash, BCG said banks in the U.S. will have to rethink their business models and develop new value propositions.

“To get back on track, banks in the U.S. need to transform their credit-card businesses, move beyond the checking account to deepen client relationships, and make sure they stay smart and nimble in the digital financial-services game,” Carl Rutstein, a BCG senior partner and a co-author of the report, said in a press release.

Additionally, the lagging profits are likely to have an adverse effect on consumers. BCG said that the Durbin amendment is likely to reduce investment in product innovation, lower rewards values on cards purchases and create higher annual fees.

The firm said new regulations, in general, will make it increasingly difficult for customers with low credit scores to obtain credit. It will also reduce the number of co-branded credit cards in the market, which can lead to reduce deals at retailers.

To produce its estimate, BCG aggregated data sets from the Federal Reserve, NACHA: the Electronics Payment Association and other third-party, client-based sources. The estimates look at data from 2006 projected out through 2020.

BCG’s predictions aren’t the only portent of bad news for bank customers. MainStreet’s Credit Power Index, released this month, looked at RateWatch data to determine that banks are squeezing consumers more than they were three years ago, despite a recovering economy.

Bank of America just announced new deposit fees in January, followed shortly by higher account maintenance fees from Chase and Citi.

What banks are worth patronizing? Find out in MainStreet’s roundup of the most consumer-friendly banks in the country.

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