Debit Card Payments Increase 532% Since 2000, But So Have Overdraft Fees

There’s a dark side to all the debit card growth in the US.

Debit card payments have jumped 532% per US household since 2000, recent data released by the Consumer Finance Protection Bureau indicate .

Especially since the credit crisis, debit card use has been advocated by everyone from Suze Orman to Marlo Thomas, the actress. But the massive increase in debit card usage has, at least in part, led to higher service fees on checking accounts when consumers overextend on the cards.

This shift to debit cards has had other effects, the CFPB report released on June 11 shows. For example, the average number of payments per month  has increased 53% to 56.2 in 2011 from an average of 36.8 per household in 2000, according to CFPB data. [See figure 1 from the report is below.]

During the same period, payments with checks declined 53%, ACH payments rose 413%.

The CFPB data is presented in the context of overdraft fees. The multiplicity of means to access money and make payments from checking accounts — increasingly via debit card — has also increased the ways to overdraw accounts, the report indicates.

2006 was an important year for debit payments. In that year, according to the report, debit card payment transaction volumes exceeded both check and credit card payments for the first time. Further, debit card payments have doubled since that time.

The growth in methods of making payments — primarily debit card acceptance in stores and online, but also the growth of bill pay in online banking – has made it easier for customers to access their money and make purchases. In other words, it has become more convenient for customers to spend money.

Providing these means has cost money, and with the convenience has come costs — not only overdraft fees, which are easier to incur, but also fees associated with checking accounts generally, which have risen steadily since 2000, but declined in the wake of the credit crisis. [see Figure 2 from the report below.]

Overdraft revenue is estimated at $32 billion for the industry as a whole, down from a high of $37.1 billion in 2009, according to the report.