Durbin is already causing banks to take action to try and recoup potential lost revenue. Even if the proposed two-year delay on Durbin is approved, consumers are already feeling the negative effects.
Banks used to love it when we used our debit cards because every time we swiped a debit card for a purchase, they got a hefty interchange fee. In turn, many banks created enticing rewards programs to get “share of wallet” or in other words, get people to use their debit card over another in your wallet for their purchases.
But banks like JP Morgan Chase have begun eliminating these reward programs as they anticipate the enactment of new legislation that Chase estimates will cost them $1.3 billion in lost revenue annually.
“We don’t want to raise fees on our customers, but unfortunately, regulation is forcing us to do it, and as a result, some customers may end up unbanked.” – Chase spokeswoman.
The legislation, called the Durbin Amendment caps how much banks can earn per debit card transaction (for more information, see Deciphering Durbin). This is projected to reduce bank’s interchange revenue by 57% or about $14 billion total.
Originally, it was thought that by lowering the interchange fees for merchants, these savings would be passed down to consumers through lower-priced goods or discounts. However, the flaw with this logic is that merchants are likely to keep these profits to themselves and Durbin does not regulate interchange fees for credit cards or prepaid cards, which have significantly higher interchange fees compared to debit cards.
As we learned from the impact of the CARD Act, which raised credit card interest rates (Credit Card Act of 2009) and wiped out many free checking accounts, banks will find ways to recoup lost revenue one way or another.
JP Morgan Chase is among the first to announce the elimination of debit card rewards. Chase already stopped issuing debit card rewards for new customers in February, but this latest announcement says that all customers will be phased out of rewards in July –two days before the Durbin Amendment takes effect.
Wells Fargo and SunTrust are following suit as they both recently announced that they would no longer offer a debit rewards program beginning April 15. As of yet, Citi has not announced any changes but they said they are “evaluating potential changes to [the] rewards programs.”
Cutting rewards programs isn’t the only way to shift customers away from debit cards. Others in the industry are considering imposing an annual fee on debit cards, limiting the number of debit card transactions per month, and limiting the size of purchase that can be made with debit cards.
Increasing credit and prepaid card use won’t make up for all the lost billions though. Industry experts are predicting non-bank ATM fees to rise and more checking account fees to be added. The “normal” monthly maintenance fee hovers between $4-$5 and is expected to rise with Durbin. Even exorbitant fees like the average $35 overdraft fee and $2 ATM fee will continue to climb. (For an in-depth look at how your bank fees compare, check out the Bank Fee Comparison Chart).
Higher bank fees and fewer rewards are likely to make happy customers unhappy ones. Since banks don’t want to lose valuable customers, many financial institutions are seeking out to see new loyalty programs emerge as Durbin takes effect. What rewards would you like to see from your bank?