The banking lobby is pushing to delay caps on debit interchange fees, but JPMorgan Chase & Co. is sending the message that it has already accepted defeat.
Banks such as Chase may be attempting to gain political favor by demonstrating the harmful effects the debit regulation will have on consumers, some experts say. Others say the New York-based 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,” says Brian Gardner, senior vice president of Washington research at KBW Inc.’s Keefe, Bruyette & Woods Inc.
Chase has begun notifying debit card customers who participate in its Chase Ultimate Rewards program that they will be phased out of it in July (
At the time, Chase had not determined how to handle existing customers in the program, which offered a free or $25-per-year version with more features. But in a recent notice to customers, the bank said even existing customers no longer will 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.
A Chase spokesperson declined to comment on the decision but says customers who paid an annual fee would be refunded a prorated amount depending on when they paid. A small group of debit customers potentially still will be able to participate in the program, he says.
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 (
Implementation could be delayed, but such an outcome more likely would be due to the Fed missing its April 21 deadline to issue final rules, Gardner says. In the end, he doubts lawmakers would provide enough support to force a delay of the regulation.
That is why it is likely Chase is comfortable announcing the end of its rewards program, even with talk of postponing the rules, says Patricia Hewitt, 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 says. By eliminating the program for existing customers, it would be even tougher to change course because the damage has already been done, Hewitt says.
“They are on the conservative side of the spectrum,” she added.
Christopher Leonard, chief operating officer and general counsel at Velocity Solutions Inc., a Wilmington, N.C.-based company that provides account-acquisition services to banks, says his company has urged clients to hold off on making major changes to their checking and debit products because the regulation could be changed.
The company’s clients primarily are banks and credit unions with less than $10 billion in assets, which are exempt from the Durbin amendment. Still, many small institutions expect they will be impacted by the regulation and are considering pricing changes.
But such banks can afford to take a wait-and-see approach because they can more quickly implement changes than their larger counterparts can, Leonard says.
“When you do things where you are dropping away your customers, you’re really throwing away the baby with the bathwater,” Leonard says.
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