WASHINGTON -- After the Federal Reserve approved Dodd-Frank Act rules capping debit-card interchange or "swipe" fees, big banks such as JPMorgan Chase & Co. are looking for ways to make up for $8 billion in lost revenue, said a Bloomberg report, including eliminating rewards programs and free checking and adding new fees.
Dodd-Frank, the regulatory overhaul enacted a year ago, required the Fed to ensure fees charged for debit-card purchases were "reasonable and proportional" to the cost of processing transactions. The 21-cent cap approved by the central bank on June 29 [image-nocss] reflected a pullback from a 12-cent limit it proposed in December.
Banks lost half of their interchange revenue from this proposal "and they are going to look to recoup that," Jaret Seiberg, a financial services policy analyst with MF Global Holdings Ltd.'s Washington Research Group, told the news agency. "It's not going to be the doomsday scenario, but it's still going to be more expensive for the average consumer."
The largest debit-card issuers, which stand to lose billions of dollars in annual revenue under the Fed caps, have already begun to eliminate rewards programs and free checking and new fees may be next in the effort to help make up the difference, said the report.
Earlier this year, JPMorgan sent letters informing customers that that they would be losing many of their debit-card rewards programs this month as a result of the new rules. Citigroup Inc. CEO Officer Vikram Pandit warned that increased fees and reduced rewards programs could make the banking system less attractive for lower-income Americans.
After the Fed released its final rule, USAA Federal Savings Bank, a thrift catering to the members of the U.S. military and their families, said it would end its debit-card rewards program on September 1. The lender based its decision on a survey of members about which services they could do without, USAA President David Bohne said in a statement cited by Bloomberg.
"USAA's survey found that members favored free checking and ATM fee refunds over debit-card rewards," he said. "Based on this feedback, we decided to stop the debit-card rewards to maintain the other benefits."
Moody's Corp. said this month in a report on the rules' effect on banks, "Most, if not all, of the lost revenue will be made up gradually, probably over a period of several years, through a variety of revenue enhancement measures."
7-Eleven franchise owners such as Dennis Lane, who became a public face of the issue as national spokesperson for the Retail Industry Leaders Association (RILA), are trying to calculate whether they will receive any benefit at all, said the report.
"I honestly think we're going to be close to where we were before Dodd-Frank," Lane, who owns a 7-Eleven in Quincy, Mass., told the news agency about the Fed's decision to cap fees at 21 cents per transaction. "That's atrocious."
Retail groups are continuing to struggle with the scope of the benefits for their businesses, the report said.
While the rules will give U.S. convenience stores an estimated $830 million to put back into the economy, the message from store owners was that the Fed could have and should have done more, Jeff Lenard, a spokesperson for the National Association for Convenience Stores (NACS), told Bloomberg.
Senator Richard Durbin (D-Ill.), who sponsored the swipe-fee amendment in Dodd-Frank, was able to secure the necessary votes in the Senate largely because of an exemption from the rules for banks and credit unions with less than $10 billion in assets. Fed chairman Ben S. Bernanke and then-Federal Deposit Insurance Corp. (FDIA) chairman Sheila Bair cast doubt over whether the exemption would be effective, spurring calls to delay the rules. Senate efforts to force a review of the exemption fell short.
For Lane, who attended President Barack Obama's Dodd-Frank signing ceremony in Washington a year ago, the fight over the rules is likely to continue in the months ahead. For the moment, though, his focus is on what happens for his 7-Eleven. "The first 20-odd cents of every transaction will go to the financial services industry, and that's not such a problem if you're selling computers or wide-screen TVs or digital cameras," Lane said. "It's a huge problem when you're selling newspaper and coffee and donuts and candy bars."
(Click here for previous CSP Daily News coverage of the swipe fee issue.)
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