JPMorgan Chase & Co. said it will phase out debit rewards programs as it braces for changes stemming from pending Federal Reserve rules.

The Fed's rules are expected to limit debit interchange. Chase last month stopped giving bonuses to bankers and branch managers for signing up debit card customers. Beginning in February, it will no longer issue debit rewards cards to new customers, Charlie Scharf, JPMorgan Chase's chief executive of retail financial services, told the BancAnalysts Association of Boston Conference on Nov. 4.

Analysts said they expect the Fed to issue proposed new debit interchange rules next month, in accord with the Durbin Amendment to last summer's financial reform act. The measure requires the Fed to write rules that set policy for establishing "reasonable and proportional" debit card interchange rates to take effect in July 2011.

Scharf told analysts that the legislation will probably result in "a transfer of value from lower mass-market consumers to merchants" and force banks to raise account fees for most customers in order to compensate for operational costs that debit interchange fees have helped offset.

JPMorgan Chase is also developing checking account products it plans to introduce in February that will require customers to maintain a minimum balance and have multiple accounts with the bank in order to avoid incurring fees, Scharf said. It now charges no fee for checking accounts when customers initiate at least five debit transactions a month.

The company offers several consumer and business debit rewards programs, including three cards issued with cobranded partners. These are the Disney Rewards Visa Debit Card and debit rewards cards issued with United Airlines and Continental Airlines; fees for Chase's cobranded debit rewards cards range from $25 to $65.

A spokesman said the banking company will "eventually" phase out its debit rewards programs but that no timetable had set.

Beginning in March of this year, JPMorgan Chase changed its policy regarding the order in which it posts debit transactions. All transactions other than checks and automated clearing house payments are to be paid in chronological order, based on the transaction's time stamp, including automated teller machine and debit withdrawals, Scharf said.

Transaction-posting order is at the center of a legal fight in which a federal court in August ordered Wells Fargo & Co. to repay $203 million in overdraft fees due to alleged manipulation of the order of customers' payments that produced multiple overdraft charges in a single day. Wells Fargo is appealing.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.