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Regulatory Change and The New Consumer Card and Banking
Relationship
December 1, 2010
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.
Table of Contents
Chapter 1: Executive Summary
The CARD Act: Challenges and Strategies
Card Act - Stage I - August 2009
Notice and mailing requirements
Card Act - Stage II - February 2010
Eliminating harmful practices and increasing transparency

2. Card Act - Stage III - August 2010
Disproportionate penalties and rate increase reevaluation
Fee must be reasonable and proportional
Federal Reserve moves to amend regulations and provide clarification
Ramifications of the CARD Act
Cost to banks in the billions
“Reasonable and proportional” application still looms
Strategies to make up the difference
Penalty and Transaction Fee Trends
Consumer Overdraft Protection: Challenges & Strategies
The Key Provision: Regulation E
What is it?
Amendments and their effect
Overdraft Revenue & Usage Analysis
FDIC Study of Bank Overdraft Programs
Earnings estimates
Revenue estimates
Revenue drivers
90% of NSF fees accrued from customers with 5+ NSF transactions per year
FDIC proposal foretells more regulation, reduced fee income
Supervisory action threatened
Steering high-frequency overdraft users a no-no—and we’re watching
Opt-out of non-ATM and non-POS debit transactions?
High-to-low processing history? Prepare to hide
Wells Fargo litigation sets precedent for additional litigation
For how much could the industry be on the hook?
$203 million in restitution to Californians for three years of high-to-low posting

3. Strategies going forward
Keep trying to get them to opt in!
Or engage in “revenue expansion”
Overdraft revenue fallout & evolving strategy applications
Q3 2010 tale of the tape
Dodd-Frank Wall Street Reform: Challenges and Strategies 13
The Durbin Amendment & Debit Interchange
Actual cost incurred
Merchants allowed to set minimum amounts and incent use of cash
Woe to debit interchange!
We believe commercial banking combined interchange exceeds $70 billion
Q3 2010 combined card interchange among top 10 banks: $17 billion
Q3 2010 debit interchange tops $2 billion at Bank of America alone
Going forward
Sue the government!
Segue into contactless
Or buy stock in PIN debit processors
Bureau of Consumer Financial Protection
What is it and what is it supposed to do?
What is the scope of its authority?
Broad rule-making authority
Broad enforcement authority
Macroeconomic Influences & Consumer Wealth Analysis
Consumer confidence helps put brakes on spending
Unemployment picture stabilizes
Unemployment and GPD forecast
Consumer Wealth on the Mend

4. Household wealth repair
Case-Shiller and FOMC housing pessimism
Householder equity comes off its bottom
Stock equity trends
Consumer & Industry Credit and Loan Performance Trends 20
Saving more + paying down debt = a healthy consumer
Chipping away at the debt burden
Consumers unburden themselves of debt
Debt service ratios peak at onset of 2008 and decline thereafter
Consumer & Household Loan Trends
Credit Card Trends
Revolving credit declines
Credit card loan performance trends
Credit card interest income a saving grace
Card lending policies final loosen a bit
Unused credit line culling coming to a close?
Credit card tightening starting to loosen
Card Loans Outstanding Growth Mirrored By Purchase Volume Gains
Visa leads MasterCard in credit and debit purchase volume growth
Big Six Issuers each grow purchase volume
Deposit Trends
Bank of America leads total domestic deposits
Banking Institution Regulatory Strategy Profiles
American Express
Response to Credit CARD Act
Regulatory Impact
CARD Act impact

5. Durbin Amendment impact
U.S. growth trends
JPMorgan Chase & Co.
Chase’s take on regulatory reform
Card Services
Response to CARD Act
Adjust intro rates, promo rates, and contract rates
Retail Banking
Reg E impact
More than 26 million checking accounts—1,300 per banker
Bank of America
Company Overview
Global Card Services segment
CARD Act Response
$1 billion CARD Act impact
Deposits segment
Reg E strategy and impact
$1 billion after-tax!
Overdraft strategy: high-to-low ringing in Bank of America’s ears?
eBanking intended to drive down costs
Looking ahead: Not an overdraft fee; a convenience fee
$10 billion Durbin Amendment impact
Capital One Financial
Card Act and Rewards
Discover Financial Services
Company overview
Network and Card Initiatives

6. Student loans diversify company away from plastic
And toward cross-selling opportunity
Wells Fargo
Cross-selling champion
Response to Credit CARD Act
CARD Act impact
Consumer Banking
Reg E impact: $800 million and counting
High-to-low reaches a low point
U.S. Bancorp
Consumer Banking
Payment Services
Reg E, CARD Act and Durbin Impact
Revised overdraft policy
Citigroup
Cards and CARD Act
Simplicity in checking
Consumer Financial Services Usage & Attitudes
Negative attitudes provide opportunity
Credit card engagement falls; high-frequency use increases share
Balance payment trends relatively unchanged
Focus on young adults
Table 1-1: Echo Boom Generation, % of Population, 2006-2015
Protections for young people not reflected in issuer terms and conditions
Campus credit card promotional agreements monitored
Three-quarters of campus spend from Bank America
Alumni organizations & foundations generate disproportionate account share

7. Table 1-2: Educational Institutions and Organizations, Card Agreements,
Selected Metrics, 2009
Students age 18-20 comprise 56% of all students
Table 1-3: Full-Time and Part-Time Students, By Age, 2010
Focus on the affluent
Primary banking relationships provide the key to success
Wells Fargo commands mass affluent share
Chapter 2: The CARD Act: Challenges and Strategies
Card Act - Stage I - August 2009
Notice and mailing requirements
Card Act - Stage II - February 2010
Eliminating harmful practices and increasing transparency
Card Act - Stage III - August 2010
Disproportionate penalties and rate increase reevaluation
Fee must be reasonable and proportional
Federal Reserve moves to amend regulations and provide clarification
Consumer protections enhanced
Promotions waiving interest & offering reduced rate afforded same protections
Fee cap applies to fees charged before and after the account is opened
Individual’s independent income must be considered
Ramifications of the CARD Act
Cost to banks in the billions
“Reasonable and proportional” application still looms
Rewards on the block?
Rewards-related penalties crop up
Strategies to make up the difference
Penalty and Transaction Fee Trends
Penalty interest rates increase

8. Undisclosed penalty APRs on almost 50% of cards
Late fees remain ubiquitous while overlimit fees decline
Penalty interest rates increase and are still widely used
Cure period disclosures
Transaction surcharge fees remain common
Cash advance fee and balance transfer rates rise
Annual fee amounts spike
Chapter 3: Consumer Overdraft Protection: Challenges & Strategies
The Key Provision: Regulation E
What is it?
Amendments and their effect
Getting more specific
No fees for ATM and one-time debit card overdrafts without opt-in
No exceptions
Written documentation
Does not apply to check, ACH, and recurring debit card transactions
Overdraft Revenue & Usage Analysis
FDIC Study of Bank Overdraft Programs
4 in 5 automated programs allow ATM and POS overdrafts
Customers informed afterward
High-to-low ordering practices conducted by majority of large banks
Earnings estimates
Revenue estimates
Revenue drivers
90% of NSF fees accrued from customers with 5+ NSF transactions per year
H1 2010 Overdraft Revenue and Usage Trends
Table 3-1: U.S. Banking Overdraft Revenue, 2005-2011 ($ billions)

9. Opt-in trends
Revenue drivers: high-frequency overdraft users
Study asserts 60% and 80% opt-in rate
We’re more pessimistic
Packaged Facts Foresees More Trouble Ahead
FDIC proposal foretells more regulation, reduced fee income
Limits on number of overdrafts, daily fee accrual and high-to-low processing
Supervisory action threatened
Steering high-frequency overdraft users a no-no—and we’re watching
Opt-out of non-ATM and non-POS debit transactions?
Wanted: Responsible transaction account and small-dollar loan program
innovation!
Outcry, outcry!
Scrutinize? Take supervisory action? Industry says this goes too far
Set expectations, but don’t regulate them
Consumers and consumer groups want it to go further
Consumer advocacy groups circle the wagons
Set concrete limits—and enforce them!
High-to-low processing history? Prepare to hide
Wells Fargo litigation sets precedent for additional litigation
For how much could the industry be on the hook?
$203 million in restitution to Californians for three years of high-to-low posting
11% of overdraft revenue
The details: High-to-low posting under legal fire
Commingling and deployment of the shadow line
Legal conclusion: gouging & profiteering drove overdraft program changes
Strategies going forward
Keep trying to get them to opt in!

10. Or engage in “revenue expansion”
Table 3-2: Fiserv revenue realization estimates, overdraft mitigation strategies
New deposit products
Short-term liquidity solutions
Cross-sell, loyalty and retention products
Predictive Analytics
Overdraft revenue fallout & evolving strategy applications
Q3 2010 mitigation: tale of the tape
Provident & National Penn succeed with high-frequency users
PNC, Regions and Fifth Third losses range from $5 million to $50 million
Bank of America new account opt-in rate at 40%
SunTrust eliminates fees on transactions valued at less than $5
First Financial Bancorp reports no customer attrition
“Grace period” trades fee income for market share & customer satisfaction
Customization + cross-selling = revenue
Compass Bancshares customizes with “free” checking and “premium” add-ins
KeyCorp gives layered “Key Coverage”—for $10 a month
Proactive communication + courtesy = fees and higher customer satisfaction
United Heritage Credit Union: “Courtesy Pay” to “help” and provide “options”
A friendly reminder from mobile banking . .
. . . To incentivize use of overdraft protection
Chapter 4: Dodd-Frank Wall Street Reform: Challenges and Strategies
The Durbin Amendment & Debit Interchange
Bottom line
Fees
Reasonable and proportional
Actual cost incurred

11. Who’s exempt?
Merchants allowed to set minimum amounts and incent use of cash
Woe to debit interchange!
$20 billion in the balance?
We believe commercial banking combined interchange exceeds $70 billion
Q3 2010 combined card interchange among top 10 banks: $17 billion
Q3 2010 debit interchange tops $2 billion at Bank of America alone
Table 4-1: Top 10 Banks, By Bank Card and Credit Card Interchange Fee
Income, 2010
Which helps explain Bank of America’s $10 billion goodwill write-off
Going forward
Sue the government!
Segue into contactless
Or buy stock in PIN debit processors
Bureau of Consumer Financial Protection
What is it and what is it supposed to do?
To what or who does the BCFP report?
What is its structure?
What is the scope of its authority?
Consolidation and enhancement of consumer protection authority
Who is exempt?
Broad rule-making authority
Broad enforcement authority
Chapter 5: Macroeconomic Influences & Consumer Wealth Analysis
Consumer confidence helps put brakes on spending
Current perceptions of business conditions, job prospects darken
Expectations Index dips as job prospect optimism dims
Unemployment picture stabilizes

12. Figure 5-1: Unemployment Rate and Consumer Confidence, 2007-2010
Unemployment and GPD forecast
Adjusted projections
Table 5-1: Unemployment and GDP Forecast, 2010-2012
Consumer Wealth on the Mend
Household wealth repair
Table 5-2: Household Net Worth, 2005-2010 (in trillions of $)
Case-Shiller and FOMC housing pessimism
Bottom line: recent growth, but weakening trends
Householder equity comes off its bottom
Table 5-3: Household owners' equity in real estate, 2004-2010
Stock equity trends
Bottom line analysis
Figure 5-2: Wealth Effect: Wilshire 5000 and Case Shiller Index, 2007-2010
Chapter 6: Consumer & Industry Credit and Loan Performance Trends
Saving more + paying down debt = a healthy consumer
Chipping away at the debt burden
Consumers unburden themselves of debt
Bottom line
Figure 6-1: Consumer Debt Burden, 2000-2010
Debt service ratios peak at onset of 2008 and decline thereafter
Analysis
Figure 6-2: Savings Rate & Debt Service Ratio, 2007-2010
Consumer & Household Loan Trends
Table 6-1: Loans Outstanding, by Loan Type, FDIC-Insured Institutions, 2007-
2010 (in billions of dollars)
Mortgage loan performance trends

13. Figure 6-3: Loan Performance, Closed-End First Lien 1-4 Family Residential
Mortgages, 2007-2010
Credit Card Trends
Revolving credit trends in focus
Figure 6-4: Consumer Revolving and Non-Revolving Debt Trends, 2004-2010
Figure 6-5: Consumer Revolving and Non-Revolving Debt Trends, % Change,
2004-2010
Credit card loan performance trends
Figure 6-6: Loan Performance, Credit Cards, 2007-2010
Table 6-2: Credit Card Loans Outstanding & Unused Credit Card Lines, 2007-
2010 (in billions of dollars)
Table 6-3: Top 15 FDIC-Insured Institutions, Credit Card Loan Receivables, Q3
2009 vs. Q2 2010 (in billions of dollars)
Figure 6-7: 30-Day Monthly Delinquency Rates, Top Six Card Issuers, %
Change, 2009-2010
Credit card interest rates increase while banks’ borrowing costs decrease
Federal funds target rate at historical lows
Profit margins breathe easier
Figure 6-8: Credit Card Interest Rate & Federal Funds Rate Trends, 2004-2010
Credit card interest income a saving grace
Figure 6-9: Top 10 Banks, By Credit Card Interest Income, 2010
Card lending policies final loosen a bit
Unused credit line culling coming to a close?
Credit card tightening starting to loosen
Figure 6-10: Credit Card Loan Tightening, Top 100 Banks, Q1 2007 to Q4 2010
Card Loans Outstanding Growth Mirrored By Purchase Volume Gains
Visa leads MasterCard in credit and debit purchase volume growth
Figure 6-11: Quarterly Purchase Volume, Visa and MasterCard, Credit and Debit
Cards, 2009-2010
Big Six Issuers each grow purchase volume

14. Figure 6-12: Quarterly Purchase Volume, Big Six Issuers, Credit Cards, 2009-
2010
Deposit Trends
Table 6-4: Domestic Deposits, by Type of Deposit, 2007-2010 (in billions of
dollars)
Bank of America leads total domestic deposits
Table 6-5: Top 15 Commercial Banks & Savings Institutions, Total Number of
Offices and Domestic Deposits, 2007 vs. 2010
Chapter 7: Banking Institution Regulatory Strategy Profiles
American Express
Value Proposition
Table 7-1: 2008 Worldwide Cardholder Spend, American Express, Visa, &
MasterCard
Company overview
Response to Credit CARD Act
American Express well-situated to take advantage of frugality trend
Regulatory Impact
CARD Act impact
Durbin Amendment impact
Sales and Card Growth
Worldwide assessment
Table 7-2: American Express Card Billed Business, Discount Revenue, Net Card
Fees, 2007-Q2 2010 (in billions of $)
Table 7-3: American Express Discount Rate, Card Spend, & Fee per Card, 2005-
Q2 2010
U.S. growth trends
Table 7-4: American Express U.S. Region Billed Business & Cards in Force,
2005-2009
JPMorgan Chase & Co.
Chase’s take on regulatory reform

15. Card Services: Summary Overview
Response to CARD Act
Adjust intro rates, promo rates, and contract rates
Table 7-5: JPMorgan Chase Card Services, Interest Rate Offerings Change,
2008-2009
JPMorgan Chase Card Services by the Numbers
Down, down, down: cards, transactions and volume
Retail Banking: Summary Overview
Reg E impact
More than 26 million checking accounts—1,300 per banker
Table 7-6: JPMorgan Chase Retail Banking, Retail Footprint Metrics, 2005-2010
Table 7-7: JPMorgan Chase Retail Banking, Household Product Usage, By Type,
2005-2010
Bank of America
Company Overview
Global Card Services segment
Card Act Response
$1 billion CARD Act impact
Card Act and Rewards
Deposits segment
Reg E strategy and impact
$1 billion after-tax!
Overdraft strategy: high-to-low ringing in Bank of America’s ears?
eBanking intended to drive down costs
ATM emergency cash tied to payroll card - and a $35 fee
And emergency cash tied to credit card
And emergency cash tied to an ATM!
Looking ahead: Not an overdraft fee; a convenience fee

16. $10 billion Durbin Amendment impact
Bank of America: Key Metrics
Table 7-8: Bank of America, Selected Credit Card and Consumer Banking
Metrics, 2008-09
Table 7-9: Bank of America Demographics: A Tale of the Tape, 2010
Capital One Financial
2008-2010 trends
Card Act Response
Card Act and Rewards
Capital One: Key Metrics
Table 7-10: Capital One, Key Credit Card Metrics, 2007-2009 (in millions, except
ratios and where otherwise noted)
Discover Financial Services
Company overview
Network and Card Initiatives
Response to Credit CARD Act
Student loans diversify company away from plastic
And toward cross-selling opportunity
Response to Recession
Table 7-11: Discover, Key Credit Card Metrics, 2007-2009 (in millions, except
ratios and where otherwise noted)
Wells Fargo
Company overview
Cross-selling champion
Response to Credit CARD Act
CARD Act impact
Consumer Banking
Reg E impact: $800 million and counting

17. High-to-low reaches a low point
Wells Fargo: Key Metrics
Table 7-12: Wells Fargo, Key Credit Card Metrics, 2007-2009 (in millions, except
ratios and where otherwise noted)
Table 7-13: Wells Fargo, Core Deposits, by Type, Q1 2009-Q2 2010 .147
Table 7-14: Wells Fargo, Retail Banking Metrics, 2010
U.S. Bancorp
Consumer Banking
Payment Services
Reg E, CARD Act and Durbin Impact
Revised overdraft policy
Citigroup
Cards and CARD Act
Simplicity in checking
Chapter 8: Consumer Financial Services Usage & Attitudes Trends
Negative personal finance and banking attitudes provide opportunity
Table 8-1: Attitudes about Personal Finance, 2005-2010
Table 8-2: Consumer Banking Products Usage, by Type, 2005-2010
Table 8-3: Consumer Loans, by Type, 2005-2010
Table 8-4: Consumer Investments, by Type, 2005-2010
Table 8-5: Credit Card Engagement, 2005-2010
Portion of paid balances
Table 8-6: Credit Card Monthly Payments, Portion Paid, All Cards, 2005-2010
Focus on young adults
Table 8-7: Echo Boom Generation, % of Population, 2006-2015
Protections for young people not reflected in issuer terms and conditions
Campus credit card promotional agreements monitored
Three-quarters of campus spend from Bank America

18. Alumni organizations & foundations generate disproportionate account share
Table 8-8: Educational Institutions and Organizations, Card Agreements,
Selected Metrics, 2009
Students age 18-20 comprise 56% of all students
Table 8-9: Full-Time and Part-Time Students, By Age, 2010
Focus on the affluent
Table 8-10: Household Income, by Income Bracket, 2008
Primary banking relationships provide the key to success
Wells Fargo commands mass affluent share
Table 8-11: Affluent Consumers, Primary Banking Relationship, by HH Income
Segments
Chapter Appendix: Trended Credit Card Balances, Portions Paid
Table 8-12: Credit Card Monthly Payments, Portion Paid, American Express,
2005-2010
Table 8-13: Credit Card Monthly Payments, Portion Paid, Discover, 2005-2010
Table 8-14: Credit Card Monthly Payments, Portion Paid, MasterCard, 2005-
2010
Table 8-15: Credit Card Monthly Payments, Portion Paid, Visa, 2005-2010
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