The Beginning of the End for Debit Rewards
JPMorgan Chase has mailed letters to their customers saying they will stop offering rewards on debit card purchases as of July 19.
The letter says this is in response to the Durbin Amendment in the financial overhaul bill which caps the interchange fees banks can collect from merchants to 12 cents per transaction. Currently, the debit card swipe fees average a little over 1% of a transaction. Banks claim they will lose billions of dollars if this change takes place. A ruling from the Federal Reserve is expected by April 21 and the law is projected to take effect on July 21.
On February 8, Chase cut off enrollment of new customers in their debit card reward program.
Chase debit card customers will be allowed to keep the points accumulated by the July 19 cutoff–they will not expire. The standard debit program at Chase allowed for 1 point for every $5 purchased with a debit card. Points could also be earned at an accelerated pace with the payment of an additional annual fee.
Other banks, such as U.S. Bancorp and PNC Bank, have already cut some benefits to their debit card rewards program. But Chase is the largest bank to cut debit rewards and other banks could follow.
Banks have lost some significant revenue streams in the past two years and this proposed cut in the interchange fees on debit cards would be another major setback for banks. Banks will always find a way to make up for lost revenue and it will usually be at the expense of the consumer. Other major banks may follow this cutback in debit rewards that Chase has announced if the current cap on interchange fees is approved.
In Texas and Illinois, Chase is testing an increased ATM surcharge that is as much as $4 to $5 per transaction for non-customers. Before the trial, the surcharge in both states was $3 per transaction. This is another way that banks are making up for revenue lost to regulations.