About one in five consumers would stop frequenting merchant locations that refuse to accept their credit cards for small payments, new survey data from Market Strategies International suggest.
A provision within the Durbin Amendment within the Dodd-Frank Act directs the Federal Reserve Board to issue rules to allow merchants to refuse credit card transactions that are less than $10 and to enable merchants to offer consumers discounts for using less-costly forms of payment. Observers expect the Fed to issue its preliminary rules late this month, and they would go into effect in July.
In the Livonia, Mich.-based research firm’s quarterly online survey involving 2,006 adults ages 21 and older conducted Sept. 23 to 29, 46% of respondents said they would pay with cash instead if a merchant refused to accept their credit card for a small-ticket purchase. Some 28% said they would use their debit card instead, 21% said they would stop shopping at that merchant’s location, and 4% said they would add something else on to their purchase to increase the sale to more than $10 so they could use their credit card.
“It is unlikely that a busy merchant is going to refuse to accept a lot of consumers’ cards, but if merchants make any significant changes in their card-acceptance policies, it is safe to say it will be a confusing couple of years for consumers,” Mark Willard, senior vice president of Market Strategies’ financial services division, tells PaymentsSource.
Card issuers in recent years “have done a good job in blurring the lines between credit and debit cards so that consumers think they can pay for anything, for any amount, with plastic,” Willard contends.
Many consumers also are disenchanted with the credit card industry, as 27% of respondents were planning within the next six months to stop using their primary credit card, the survey results suggest. Some 18% planned to make a different card their primary card, while 16% planned either to switch to a different credit card or to sign up for a new credit card.
Negative perceptions toward credit card companies remain high, despite some recent improvement. The majority of respondents, 69%, rated their perception of credit card companies as negative in the recent survey, compared with 74% who did in March and 71% who did in March 2009.
Twenty-seven percent of respondents said they likely would switch cards in the next six months, while 73% planned to stick with using their existing card.
Some 38% of respondents said they had used their credit card less within the previous six months, while 19% said their credit card use increased and 43% said it remained the same.
Reasons respondents gave for using their credit cards less frequently included economic concerns (58%), an income change (48%), changes in their cards’ interest rates (18%), changes in their own net worth (11%), general “cutting back” (8%) and a decrease in their credit limit (7%).
Baby boomers were least likely to have reduced their credit card use within the previous six months, the data suggest. Forty-five percent of respondents ages 45 to 62 said they used their credit card less, while 36% of those ages 21 to 29 said so, as did 31% (each) of respondents ages 30 to 44 and those 63 and older.
One-third of consumers surveyed were unaware of the Credit CARD Act, most of which went into effect in February, while 67% said they had heard of it. Of those aware of the legislation, 43% of respondents said they expected “no changes” to result from it, 23% said they were “waiting for a credit card company announcement,” 16% planned to use their credit card less often, and the rest were not sure.
The Credit CARD Act requires issuers to give cardholders at least 45 days’ notice of changes in fees or interest rates, other than those that are promotional or tied to a variable index. It also prohibits issuers from increasing cardholders’ interest rates unless the minimum monthly payment is more than 60 days late and requires payments to go first toward credit card debt assessed with the highest interest rate.
More consumers applied for credit cards in the recent survey than did earlier this year, but the percentage of those turned down also rose. More than twice as many, 16%, of respondents applied for a credit card during the third quarter compared with 7% who did so during the first quarter. But issuers turned down 34% of respondents seeking a new card during the third quarter compared with 31% turned down during the first quarter.
Cash use for routine purchases continued to decline, particularly among the youngest group of respondents.
Among those ages 21 to 29, 34% said they decreased their use of cash from a year earlier while 24% increased cash use and 42% had no change. Among respondents ages 30 to 34, 30% decreased cash use, 23% increased it and 47% noted no change. Among those ages 45 to 62, 28% decreased their cash use, 25% increased it and 48% noted no change. Among those older than 63, 29% decreased their cash use, 12% increased it and 59% reported no change.
Respondents generally said they planned to use debit cards and cash most often for purchases in the next two to three years. Preferences were debit (37%), cash (33%), “PayPal, etc.” (28%), electronic withdrawal (25%), gift cards (18%), “primary credit card” (14%) and “paper checks” (8%).
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