K.C. Fed: Free Checking ‘More Available’ Since Durbin

Dec. 12, 2013

According to widespread protest from the banking industry at its passage in 2010, The Durbin Amendment, which capped interchange fees card issuers are able to charge merchants on debit transactions would spell the end of free checking. Banks working under the new regulations would not possibly be able to replace the lost interchange revenue without reducing services to their retail consumers and the first casualty would be ubiquitous free checking. A new report produced by the Federal Reserve Bank of Kansas City, however, said that, while the banks affected by Durbin did react like they said would, consumers have more free checking options today–if they’re willing to move their account.

The report, written by Fed senior economist Richard J. Sullivan, found that, despite the loss of $8 billion in revenue at the larger banks covered by the Durbin Amendment (financial institutions with assets of greater than $10 billion), many of which did drop free checking, a greater increase in smaller, exempt banks offering the free DDA product more than made up for it.

“Elimination of free checking accounts at larger, regulated banks was more than offset by an increase in free checking accounts at smaller, exempt banks,” Sullivan wrote. “While generally more available, a consumer who wants free checking may have to switch to a smaller bank.”

The report also looked at conditional free checking and found the Durbin Amendment had a similar effect. Conditional free checking became “somewhat more expensive and more complex” at the non-exempt big banks but cost less and became less complex at smaller banks.