While the banking lobby pushes to delay caps on debit interchange fees, JPMorgan Chase & Co. is sending the message that it has already accepted defeat.
Some experts say banks like JPMorgan Chase may be attempting to gain political favor by demonstrating the harmful effects the debit regulation will have on consumers. The thinking goes that such a move could cause legislators to rethink their support for the regulation.
But others say the New York bank's decision to cut debit rewards for existing customers shows it is confident that the Durbin amendment, which called for the Federal Reserve Board to regulate the fees, will take effect substantially as planned.
"They don't have much time left before the implementation of Durbin to change their programs," said Brian Gardner, the senior vice president of Washington research at KBW Inc.'s Keefe, Bruyette & Woods Inc.
JPMorgan Chase is preparing for potential losses once the Durbin amendment takes effect, which is scheduled for July 21.
The company has begun notifying debit card customers who participate in its Chase Ultimate Rewards program that they will be phased out of it in July. It already stopped issuing debit rewards cards to new customers in February, a decision it announced in December.
At the time, JPMorgan Chase had not determined how to handle existing customers in the program, which offered a free or $25-a-year version with more features. But in a recent notice to customers, the bank said that even existing customers would no longer be able to participate.
"Congress recently enacted a new law known as the Durbin Amendment that significantly impacts debit cards," the notice said. "As a result of this law, we will be changing our debit rewards program."
The notice does not explain what the Durbin amendment is but blames it for the bank's decision to stop offering points on debit purchases after July 19, two days before the debit fee cap is supposed to take effect. JPMorgan Chase has said it expects to lose $1.3 billion in revenue as a result of the Durbin amendment. Analysts say the debit card issuers as a whole could lose up to $14 billion based on the Fed's proposed cap of 12 cents per transaction.
A spokesman for JPMorgan Chase declined to comment on the decision on Monday but said customers who paid an annual fee would be refunded a pro-rated amount. A "very small" group of debit customers will potentially still be able to participate in the program, he said.
The notice was sent even as Durbin opponents have made some headway in Washington.
Legislators in the House and Senate last week introduced separate bills to delay implementation of the Durbin amendment by one or two years. The legislation follows comments by Fed Chairman Ben Bernanke and Federal Deposit Insurance Corp. Chairman Sheila Bair about the regulation's potentially negative impact on community banks.
Gardner said implementation could be delayed, but such an outcome would more likely be a result of the Fed's missing its April 21 deadline to issue final rules.
Gardner said he doubts lawmakers would show enough support to force a delay of the regulation.
That is why it is likely JPMorgan Chase is comfortable announcing the end of its rewards program, even with talk of postponing the rules, said Patricia Hewitt, the director of the debit advisory service at Mercator Advisory Group in Maynard, Mass.
"If Durbin is delayed, then do they send out another notice? Do they halt what they are doing?" Hewitt said.
Christopher Leonard, the chief operating officer and general counsel for Velocity Solutions Inc., a Wilmington, N.C., company that provides account acquisition services to banks, said his company has urged clients to hold off on making major changes to their checking and debit products because the regulation could be changed.
Velocity's clients are primarily banks and credit unions with assets of less than $10 billion, which are exempt from the Durbin amendment. Still, many small institutions expect they will be adversely affected by the regulation and are considering pricing changes.
But such banks can afford to take a wait-and-see approach because they can implement changes faster than their larger counterparts can, Leonard said.