JPMorgan Will Cease Debit-Card Rewards Program Because of Proposed Fee Cap
JPMorgan Chase & Co. (JPM) will stop offering debit-card rewards for almost all of its customers in July to reduce losses from a proposed cap on interchange fees.
The company is mailing letters to customers announcing the change, said Tom Kelly, a spokesman for the bank. New York-based JPMorgan said in November it would end rewards for new customers in February, while keeping programs for existing clients.
“Congress recently enacted a new law known as the Durbin Amendment that significantly impacts debit cards,” said one of the company’s letters to customers. “As a result of this law, we will be changing our debit rewards program.”
The Durbin Amendment is part of the Dodd-Frank Act financial overhaul enacted last year, that caps debit-card swipe fees to help merchants who said they were powerless to negotiate rates with payment networks Visa Inc. (V) and MasterCard Inc. (MA) The Federal Reserve has until April to decide what the cap will be before being implemented July 21, 2011.
The Fed proposed capping debit-interchange fees at a flat 12 cents a transaction in December, compared with the current formula that averages 1.14 percent of the purchase price or about 44 cents. Such a cap would cost JPMorgan, the second- largest U.S. bank by assets behind Bank of America Corp. (BAC), about $1.3 billion in lost revenue annually, according to a Feb. 15 investor presentation.
Customers will continue to earn rewards through July 19, and points accrued through that date will not expire, according to the letter. Debit cards with annual fees won’t be assessed as of July, Kelly said. The bank’s credit-card rewards programs will not be affected, he said.
Banks lobbied against the proposed cap on debit interchange, which generated about $16 billion in revenue for the industry in 2009, according to the Federal Reserve.
Senator Jon Tester, a Montana Democrat, is the chief sponsor of a bill that would delay the rule for two years. Representative Shelley Moore Capito, the West Virginia Republican who is chairman of the House Financial Services subcommittee on financial institutions, introduced a similar measure.
It’s not clear whether a two-year delay on the cap would change the company’s plans, Kelly said.
The bank’s move was reported March 20 by American Banker.
To contact the reporter on this story: Elizabeth Ody in New York email@example.com