Debit-Card Rewards Programs, Free Checking Accounts Begin to Vanish
WASHINGTON, D.C. -- Banks are searching for ways to make up for an alleged $8 billion in lost revenue after the Federal Reserve set a 21-cent cap on debit-card transaction fees last month. Two solutions are eliminating debit-card rewards programs and free checking accounts, according to Bloomberg.
One year ago, the Durbin Amendment of the Dodd-Frank Wall Street Act required the Fed to make sure debit-card transaction fees were "reasonable and proportional" to the cost of processing transactions. Politicians initially proposed a 12-cent limit, but later settled on a 21-cent swipe fee cap. The Fed enacted the final rule on June 29, which will go into effect on Oct. 1.
Even before the final rule became official, JP Morgan sent letters to its customers telling them they would be losing many of their debit-card rewards programs this month due to the new rules. According to Bloomberg, the CEO of another banking giant, Vikram Pandit of Citigroup, warned that increased fees and reduced rewards programs could make banking less attractive and viable for lower-income Americans.
After the Fed released its final rule, banks quickly began to make changes. One example was USAA Federal Savings Bank, which said it would end its debit-card rewards program on Sept. 1.USAA said it conducted a survey of its customers, who preferred to received free checking and ATM fee refunds over debit-card rewards.
"Most, if not all, of the lost revenue will be made up gradually, probably over a period of several years, through a variety of revenue enhancement measures, Moody's Corp. wrote in a report on the rules' effect on banks.
Although the rules will allow convenience stores to put an estimated $830 million back into the U.S. economy, it's not enough, said NACS Chairman Jeff Miller, who is also president of Miller Oil Co. "A cap of 21 cents per transaction is better than the current average of 44 cents per transaction, but it is more than 400 percent more than the 4 cents per transaction that the Fed-sponsored survey of banks found to be the real cost of processing a transaction."
Several c-store owners agreed. Dennis Lane, a 7-Eleven Inc. franchise owner, told Bloomberg, "I honestly think we're going to be close [regarding profitability] to where we were before Dodd-Frank. That's atrocious."
For more about the new swipe fee reforms, check out the July 25 issue of Convenience Store News.