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Durbin Amendment’s First Victims: Debit Reward Programs

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The Durbin Amendment, which would limit debit interchange fees on debit cards to a mere 12 cents, is set to take effect soon but large banks are already cutting reward programs in anticipation of the amendment.

If you have a reward debit card from a large bank (over $10 billion in assets), then expect to see them kill your reward program. Wells Fargo is no longer offering the program to new customers as of March 27th for Wachovia customers and April 15th at Wells Fargo customers (existing customers will keep the program for now). JPMorgan Chase told its customers that the program will end on July 29th. SunTrust will end its program April 15th. (link)

Curious if you’re bank is a large one? This list from the National Information Center shows the top fifty bank holding companies and each one has over $10 billion in assets. What you won’t find on this list, usually, are those smaller regional banks that offer reward checking accounts, which need debit interchange fees to pay for the higher yields.

The writing is on the wall: If you like your debit reward cards, you’ll need to find a smaller bank.

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41 Responses to “Durbin Amendment’s First Victims: Debit Reward Programs”

  1. Texas Wahoo says:

    Just to be clear, the reason large banks are cutting the rewards and small banks are not is because small banks are specifically exempted from the new rule. All banks need the fees to pay for the rewards, the rule just states that only small banks are allowed to charge the fees and thus give out the rewards.

    • John says:

      WOW, Texas Wahoo….thanks for that. Didnt know about that part/. Ive been thinking of switching to a credit union. Chase just ditched their debit reward program and now offers a new “floating credit limit credit card reward program” that basically does the same thing but with a credit account. Still dislike that the ultimate result of the law will result in pressure for more americans to spend on credit instead of savings, but if the “small banks” part was better published, perhaps we could get more people to support local business instead of Chase, wells fargo and BofA.

  2. James says:

    You can also add elimination of free checking (some, not all, banks) and no more ATM fee reimbursements (some, not all, banks) due to the new rules and regulations

  3. Bey says:

    I can’t express what I really feel about Durbin, Dodd, Frank, and others — suffice it to say that I think banks are in much less need of regulation than Congress or the Federal Reserve. Banks of all sizes will find ways to make a profit while still complying with the rules. Large banks may simply start incentivizing the use of credit cards, the interchange fees on these are not affected as are the fees on debit cards. And smaller banks, free from the need to compete with larger banks for free and/or reward checking, may not continue to offer these accounts — or they might least reduce rewards to boost their own profits. Congress tinkers, business wins, consumers lose. Thanks, guys.

  4. zapeta says:

    Unfortunately this is going to finally kill off the reward checking account, pretty much the only liquid account that is paying a decent rate these days. Just another regulation to encourage consumer spending.

  5. Hunter says:

    I think this is a positive change. I am tired of banking products with layers of packaging. Let’s be honest, rewards programs are crap, and they are designed to encourage spending.

    • Shirley says:

      Rewards programs can be well worth the effort if you just use a bit of common sense and treat them the same as you would if you were using cash.

    • Bey says:

      I’m not sure how you can say that these programs encourage spending. I have to use my rewards debit card only 8 times a month, and it’s not as though there’s a minimum purchase amount. So I spend the same money I was already going to spend, and for that I earned an extra $1400 in interest last year. If you don’t want layered products, get the simplest checking account you want and go with it, but don’t criticize my choice because it’s not your choice.

      • Jim says:

        Don’t fool yourself. You — and everyone else — pay for that interest through higher prices. I own a small retail store and those interchange fees are overhead. How do I pay overhead through what I charge my customers.

        • Bey says:

          Don’t shine us on. If interchange fees disappeared tomorrow you wouldn’t lower your prices as a result — because these fees are not the only overhead you have. You’ll still keep prices as high as you are competitively able. And per my other post on this page, nothing requires you to take this type of payment. Don’t complain about the program you signed up for — you don’t like the fees, don’t accept plastic. Wonder how long Visa would last if all you poor merchants would dump them? Or how long you would last if the government told you how much you were allowed to charge for your goods & services?

        • Texas Wahoo says:

          How much are you planning on lowering your prices now that you are paying lower interchange fees for debit cards issued by extremely large banks?

          • TexasRetail says:

            I don’t have plans to lower prices since they’re at advertised levels, but if interchange fees would disappear, I would hire two new employees. Even if some merchants don’t lower prices or hire new people, the money stands a better chance of staying in the community. The way it is now, that money is going somewhere else.

  6. Hogan says:

    I think it is a great law–I love it when people say let the free market decide when an absolute army of lobbyists over the last 30 years ensured that the market is not free. Have you ever noticed that merchants can’t offer you a discount for using cash instead of credit because if merchants offer a discount for using cash then the merchant is excluded by their contracts with visa or master card from using visa or master card at all plus there is a law that merchants can’t discount using cash over credit so in effect we all pay especially poor people because they pay higher prices for all these people running around using there credit card for purchases–they get the rewards and the rest of us pay higher fees to account for the fees charged the merchants. At least let people who avoid paying the interchange fee by using cash get the discount rather than the guy buying a dollar pack of gum whose transaction cost the merchant 44 cents but gets the discount on the back end for his self indulged frequent flyer miles free trip on the backs of the rest of us who subsidize his frequent flee discount.

    • Bey says:

      Merchants are not required by law to accept credit or debit cards as payment. They choose to participate in a program with Visa, etc., which has obvious benefits for all. Folks like you seem to imagine that merchants are magically going to lower their prices as a result of these changes. I think it’s more likely that there will be no cash discount offered by most stores – that they will maintain prices and enjoy the increased profits, and that you (the financially illiterate) will continue to finance my (probably reduced) rewards. Good luck with that class warfare thing you’re going with.

    • Texas Wahoo says:

      “At least let people who avoid paying the interchange fee by using cash get the discount rather than the guy buying a dollar pack of gum whose transaction cost the merchant 44 cents but gets the discount on the back end for his self indulged frequent flyer miles free trip on the backs of the rest of us who subsidize his frequent flee discount.”

      Then buy your stuff at a place that only accepts cash. There are still places like that. Just because an establishment would rather pay the fee and accept credit cards than offer you a discount for your cash purchases doesn’t mean the market is not free.

  7. Time to just get a credit card. Credit cards let you build up your credit and have amazing cash back opportunities, if you find the best ones. I don’t think I’ve used my debit card in 4 years!

  8. govenar says:

    Credit cards have better rewards than debit cards anyway.

  9. Shirley says:

    While it is true that credit card sales tend to be higher than cash or debit/check sales, a little self control can go a long way and does become habit after a bit.

    • Bey says:

      Agreed, self control is essential. Don’t charge it if you don’t already have the funds. But, the right tool for the right job — debit cards used locally for small purchases, hopefully in conjunction with an interest reward, and credit cards used for major purchases and online shopping, hopefully in conjunction with a cash-back reward. Both are safer than cash and more profitable, when used correctly.

  10. Hogan says:

    Hey Bey Texas Wahoo–sound like you work for those army of lobbyists in DC that have restricted the free market over the years–you are just trolling the Internet batting down any negative comments about the monopolistic swipe fees of banks. As a user of cash I am tired of subsidizing your rewards points and because of the credit cards companies monopolistic contracts you can’t go to stores that accept cash only unless I want to go to the inner city to a store that sells single cigarettes to poor people for a buck.

    • Texas Wahoo says:

      Do you know why places accept credit cards? Beacuse they are more convenient than cash for most people. I was in Philly a couple of weeks ago and all of the lunch places only accepted cash – so it can be done. It generally isn’t done because most people (like myself) don’t like to carry around a ton of cash.

      And I appreciate your rewards points subsidies.

      Personally, I have no problem with the law. Although if this is really such a problem, shouldn’t they have applied it to all issuers or debit cards, not just banks with over 10 billion in reserves?

    • Anonymous says:

      Hogan, I work for me, period. And I use every financial reward across the spectrum to increase my revenues. If you want to keep your cash under the mattress, fine by me. Your views on what is truly monopolistic are a bit short-sighted — businesses do not have to agree to take plastic (not sure what part of that you’re missing), and I’d like to remind you that the government has a bigger monopoly and a more detrimental effect on your money than any bank does. Thanks for playing along, goodnight everybody!

  11. Santos says:

    Another example of the government trying to “help” us.

  12. Hogan says:

    Anonymous is another banker lobbyist trolling social media sites batting down negative comments about the monopolistic swipe fees. It is a monopoly pure and simple and it is not free markets if you prohibit merchants from offering discounts for using cash–I want my 44 cents back. How is that any different than microsofts action on it’s operating system. The gravy train is over and so are tax subsidized bonus to bankers. It is a false choice to say don’t frequent businesses that don’t offer credit cards when most businesses offer credit cards. What I really object to is not the amount of the fee it is the business model that restricts merchants in their transactions with their customers and then offers reward points to their best customers and the rewards are not paid by the merchant, the bank, or their best customer but the reward money is a wealth transfer from poor people who use cash to wealthy people incentivized to use their credit card to buy a pack of gum.

    • Bey says:

      Yes, and you’re a charter member of the Consumer Federation of America. Look, merchants and consumers are not going to win with this government intervention. Merchants aren’t going to lower prices, at least not in proportion to the relief they might gain from the Durbin amendment, and banks are simply going to shift their fee structure. You’ve railed against subsidizing my rewards, well just remember that my debit card usage was subsidizing free checking. The checking account fees and requirements that are coming are going to hurt the poor a lot more than the cost of interchange fees ever did.

  13. Hogan says:

    Bey I am sitting in Madrid Iowa far away from the lobbying in DC and am not a member of any group that is lobbying the fees. You do make a good point about shifting costs–but the costs will be upfront and known which is a lot different than the model used today. Now the banks can truly compete on lower fees if they so choose but don’t make one group of people who don’t even use credit cards subsidize the swipe fees or at least allow them to opt out. The key is to get banks and merchants to compete on price not sit back and watch the fees roll in or pass the fee along to everyone. If banks charge me for checking I can always switch banks or remain part of the unbanked at least my higher costs are going to the risk taker merchant and not some guy living in Georgetown sitting at his dining room table planning his rewards trip to Europe on the backs of people who use cash (poor people)–what is the societal benefit in that? The banks to their credit figured out away to reward their best customers without paying for it and heavy users of credit cards are saying hey I am responsible with my cards –yes you are but everybody pays higher costs the more you use it and that does not happen if people are paying cash.

    • Texas Wahoo says:

      You know that credit card fees aren’t being restricted, right? This law only restricts debit card fees. And even then, only big bank debit cards. So I will still rack up rewards on my credit card purchases (why would anyone rather use a debit card). Even if I want to/have to use a debit card, I can still get rewards because my money is in a credit union, which is explicitly exempted from the law.

      • Jim says:

        I know a lot of people who use debit cards because they don’t feel they can be responsible with credit cards. That’s a pretty good reason I think…

        • Texas Wahoo says:

          Agreed. Although that seems to go against Hogan’s point. The only people I know who use debit cards more either don’t have credit cards (bad credit, too young, etc.) or have a history of credit card debt (like you said). If we’re worried about transfering money from poorer people to wealthier people, shouldn’t we limit credit card fees instead of debit card fees. It seems like this law is actually furthering the wealth transfer by only giving rewards to those who use credit cards.

          • Liberty says:

            I am not young, nor do I have bad credit. I still do not own a credit card. I don’t believe in credit, I don’t believe in debt. If I want something I don’t buy it until I have saved enough to buy it. This is a lesson I wish our Government would learn. They’ve gotten so far in debt and that debt is the cancer eating away at America.

    • Bey says:

      Hogan, you’re admitting that you’d rather see the merchant benefit than me? That’s exactly what Target and Wal-mart would like, too, and they’re just two of the large retailers that have already figured the cost of managing plastic into their businesses. They aren’t going to give you a huge discount for cash or lower their prices, they’re going to boost their profits and reward their stockholders. Then, you keep ranting about self-indulgence and trips to Europe. My rewards are in the form of higher interest, which is what the majority of debit cards offer. (TW, that answers your question). This increased income in the form of FDIC-insured funds is what my family has been utilizing — 3% on $50K beats the miserable rates you get on savings accounts or CDs these days, thanks to the Federal Reserve handing cash to the banks as fast as they can print it. So you’d torpedo one of the only safe investments middle-class families have left, so you can get even with the banks for whatever reason. I’m done, if you want the last word it’s all yours.

  14. thikmick says:

    I don’t use credit cards–only cash or debit card. I use my debit card to “charge”, it still comes out of my checking acount immediately.. I earn rewards points for “charging” with my debit card. I pay twenty five dollars per year for this program. I earn enough points to get gifts for some of my 17 grand kids. Now it is going away because the banks have another EXCUSE to eliminate a program and enhance their profits. EXCUSES are like —holes, all banks are run by them.

    • Liberty says:

      You have it so backwards.

      The companies where you use your debit card to “charge” your purchase CHOOSE to accept credit/debit cards. They choose to do so knowing the price for each transaction. The merchants and banks were in agreement and customers were happy; until the government decided to stick their nose somewhere it didn’t belong.
      It is the –holes in government over regulating, over legislating and butting into businesses they have no business butting into.
      If we are lucky eliminating the rewards program will be enough to defray the cost increase to the bank so we can continue the convenience of using our debit cards at little or no cost to us, the customer.

    • BC says:

      you got it wrong. Reward programs cost money to run. Banks used interchange to subsidize them. Durbin cut interchange and gave $ to the merchants. Banks via a reward program shared or gave back to their customers. The Durbin theory was that merchants would drop prices and the consumer would benefit. So much for that theory.

      The real tradegy of durbin is that congress determined how much a bank can make on interchange. Who’s next? Congress might just determine what your business can make. That’s right – supply and demand no longer determine profitability. How have we fallen so far?

      Conquered from within.

  15. skylog says:

    strange. i have been waiting ever since i starting hearing about this for my bank to release a statement. to this point, i have heard nothing. i am sure it is just a matter of time.

  16. BC says:

    The consumer is the loser when it comes to Durbin. 1) Merchants are not passing anything back to the consumer. 2) On the other hand Banks used to use interchange revenues to subsidize rewards programs and services like free checking.

    Now merchants pocket more, Banks raise fees to offset losses = Consumers are paying for
    Durbin.

    Here is the irony of the interchange fees which were pitched as high and exhorborant. No one looks at the cost of cash. Imagine if cards did not exist – Walmart would have to pay for armored services, cash services, more security, more insurance, more vault space, more employees to count and manage the cash.

    Congress no longer represents the american citizen.


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