Debit cards rewards may be gone; more changes coming

JPMorgan Chase has announced that it will end its popular debit card rewards program for existing customers on July 19. Wells Fargo, SunTrust, and PNC have announced that they will either end their rewards programs or close them to new customers. Large banks are reacting to a ruling proposed by the Federal Reserve in December to lower the interchange fees that banks charge merchants to $.12, from approximately $.44, for an average single debit card transaction.
 
The Fed has indicated that it will issue a final ruling on the debit card swipe fee on July 21. The ruling was mandated by an amendment to the Dodd-Frank Bill sponsored by Senator Richard Durbin (D-IL). Banks are expected to decrease their revenues by billions of dollars if the interchange fee decrease goes into effect and are using the opportunity to cut rewards programs as one way of softening the blow.
 
Bank of America, Citi, and TD have yet to announce their plans regarding the rewards programs, but they are expected to follow the lead of the other big banks. Financial institutions with less than $10 billion in assets are exempt from a limit on debit card swipe fees. Although bills pending in Congress with bipartisan support will postpone the Fed’s ruling for one or two years, Wells Fargo has said its decision is final.
 
Merchants from small businesses to the giant, Wal-Mart, are expected to gain from the reduction in fees, but consumers are left wondering how they could benefit. It is possible that merchants will lower prices, but with a small profit margin in retail business it is not clear that lower prices will result. Conceivably, more small businesses might introduce rewards programs of their own in the form of cash, coupons, or rebates by using features currently available in point-of-sale software. Consumers could shop around for a debit card with rewards but fees on new checking accounts could cancel out the benefits.
 
The new regulations are expected to result in a significant loss of revenue to banks. JPMorgan Chase, which reported a net income of $17.3 billion for 2010, estimates it will lose $1.3 billion a year if the Fed proposal takes effect. Raymond James Equity Research estimates that the financial industry could lose $10 billion a year if the Fed plan is implemented, according to a report in the Florida Sun Sentinel.
 
Consumers should pay close attention to the fine print as banks offer new credit cards with rewards programs and as merchants introduce rewards cards. The American Institute of Certified Public Accountants (AICPA) cautions consumers on its site, Understanding merchant rewards programs - 360 Degrees of Financial Literacy.
 
The rules, restrictions and limitations on what you may earn through a rewards program can be complex. Most programs offer a larger percentage reward for purchasing select products or categories of products than they do for all products. You may have to spend a minimum amount per month, quarter or year to get any rewards, and there are often limits both on the amount of rewards you can earn and on the time allowed for cashing them in. What's more, the originator of the rewards program may change the rules or cancel the program altogether with little notice or recourse.
 
Debit card users can expect more changes in the coming months. Chase has announced that it is considering a cap of $50 or $100 on individual debit card transactions, and other banks are considering charging fees for debit card transactions.
 
Senator Jon Tester (D-MT) is sponsoring a bill in the Senate that will postpone the Fed’s regulation for two years. A House bill, co-authored by Representatives Shelley Moore Capito, (R-WV) and Debbie Wasserman Schultz, (D-FL) calls for a one-year delay.
 
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