Banks curtail rewards for debit-card use

You won't be hearing that ka-ching sound as much when you swipe plastic.

Several banks, including two of the biggest operating in Arizona, are scaling back or ending their rewards incentives on debit cards.

The programs have provided a nice way to collect a small rebate for using debit cards for all sorts of purchases. But with debit-fee revenue set to be capped, more banks are curtailing their rewards.


This new trend has its roots in the Durbin Amendment to last year's financial-reform bill. The amendment authorizes government curbs on swipe charges, known as interchange fees, with details to be set by the Federal Reserve. The Fed could cap the fees that card issuers collect from merchants at 12 cents per transaction, possibly lower. That's down from 1 to 2 percent of the value of the transaction now.

Merchants long have complained about these charges, because they're the ones who pay them. But the banking industry says the proposed new caps are below what it costs them to run the debit-card program, including the losses that banks and credit unions face on fraudulent transactions.

There has been movement in Congress to delay the fee caps. But in the absence of any deferral, the Fed is expected to render a final decision by April 21, with fee caps going into effect three months later.

Wells Fargo said it no longer will make debit rewards available to new customers but hasn't announced changes for existing customers. The curtailments took effect last month for new customers at former Wachovia branches. New Wells Fargo customers won't be able to earn rewards after April 15. Existing customers continue to accrue points.

Earlier this year, Chase announced more-severe restrictions. Chase stopped qualifying customers for debit rewards in February and will end the program for existing customers in July. Existing customers continue earning points until then, and the rewards won't expire after July.

"It's definitely a reaction to the Durbin Amendment," said Mary Jane Rogers, a Chase spokeswoman.

More debit-rewards programs could be curtailed.

"Many other banks will likely cut their rewards program if the Federal Reserve upholds this 12-cent limit on the debit-card-interchange fee," predicted Bill Hardekopf, chief executive officer at Low Cards.com.

Bank of America, the other big bank operating in Arizona, hasn't announced a curtailment of its debit-reward program, but other entities have, including U.S. Bancorp, PNC Bank and SunTrust.

Banks already had lost some fee revenue from the recent Credit Card Act, and the debit caps represent another setback.

"Banks will always find a way to make up for lost revenue, and it will usually be at the expense of the consumer," Hardekopf said.

- Speaking of the credit-card-reform act, the Federal Reserve has approved a new rule designed to help consumers manage their debts better. Unfortunately, some say, it could make credit harder to come by for certain people, including stay-at-home moms or dads.

The Credit Card Act requires card companies to evaluate a person's ability to make payments before opening a new account.

Previously, an applicant could cite his or her "household income," but the Fed decided that term was too vague to allow issuers to make a proper credit evaluation. Now, lenders will need to rely on an applicant's own income or salary, starting in October.

Some groups claim that the new rule will make it harder for non-working spouses, especially women, to establish credit in their own names. But Odysseas Papadimitriou, CEO of CardHub.com, said the rule would help prevent borrowers from taking on more debt than they can handle.

- Bankrate.com recently released an updated study on credit cards that offer cash-back rewards. One interesting finding: The programs generally weren't hurt by the credit-card-reform legislation.

If you're considering a cash-back credit card, plan on getting at least 1 percent back on your purchases. Of the 32 cards surveyed, nearly half pay cash rebates of at least 1 percent, starting with your first dollar of spending.

Many cards pay more than that on certain purchases (groceries, gasoline and travel, for example) or with higher levels of spending. The survey also found introductory bonuses are common, while annual fees are rare.

The study didn't rate specific cards, which included those from American Express, Bank of America, Capital One, Chase, Fidelity and Wells Fargo.

But you can compare key terms on the 32 cards in the "Credit Cards" section at Bankrate.com.

- In an era of rising bank fees, here's another one to beware of: charges for using ATMs operated by a bank of which you're not a customer. Chase is testing a higher ATM surcharge of up to $5 per transaction in Illinois and $4 in Texas. Arizona and other states aren't yet affected.

Nearly all banks charge fees when non-customers use their ATMs, averaging $2.33 per transaction, according to a 2010 study by Bankrate.com. That's in addition to fees your own bank might charge for going out of network. These costs average $1.41.

by Russ Wiles The Arizona Republic Apr. 3, 2011 12:00 AM




Banks curtail rewards for debit-card use