Round two of the Durbin Swipe Fee Watch:
On December 17, 2010 we wrote on this blog that if the Fed's proposed interchange fee rule (as ordered by the Durbin Amendment in DFA) that would limit banks to 12 cents per transaction from the average rate of 44 cents, that "Banks will also look to pull back rewards programs that gave cash back or built up points or airline miles..."
Although the final rule was a 21 cent max charge, the basic argument still remained: an interchange fee cap will restrict bank revenues and force them to find other ways of increasing revenues or cutting programs. Today was another example of this prediction coming true:
After ending its debit rewards program for new customers earlier this year, Wells Fargo is now scrapping the program for existing customers as well. Beginning in October, customers who are already enrolled in the issuer's debit card rewards program will no longer receive points for making debit card transactions. In most debit rewards programs, points are awarded to customers for actions like spending, carrying high balances and making minimum deposits. Customers can then redeem the points they collect for cash or gift cards or even electronics.
The Wells Fargo program was hurting no consumer. It was totally voluntary. If the service was disliked, a consumer could go to another bank, or simply opt out of the rewards program all together. But somehow the interchange fee rule is "protecting" them.
As we wrote in 2009 warning about a CFPB, it is protecting them to death.
Making sure we are connecting all of the causation vs. correlation dots, here is why the program is ending:
"We made this decision due to new regulations that limit the amount of money merchants pay financial institutions for processing debit card transactions," a Wells Fargo spokeswoman said. "The new cap doesn't cover all the costs associated with offering debit cards, including processing, administration and fraud."
Who's side is the government on? How many retailers have lowered their prices 21 cents? Are consumers any better off because of this regulation? No they are not. Retailers are happy to get more money, but they aren't the job generators needed to get the 6 to 8 million more workers necessary to end the unemployment slump. This is a total loss on the consumer side.
The warnings have been around for years. But in the rush to Dodd-Frank judgment, no one listened. Ironically, we even used Wells Fargo in a hypothetical example for how banks might react to this rule back in December.
Think about it like this: If you are PNC or Wells Fargo, and this rule goes in place, and you lose hundreds of millions in revenue by being forced to lower your interchange fee to a below market rate, what will you do? The debit card system is in some ways a closed cycle. You won't pull resources from other parts of the institution to cover a program that is now experiencing a loss. You will make up for the lost revenues with new fees, higher current fees, higher penalties, or reduced benefits.
There go the reduced rewards benefits. JPMorgan Chase and SunTrust eliminated debit card rewards programs earlier this year as well (see the first Watch post here). Bank of America has already increased checking account fees. It is all playing out as unfortunately expected.
P.s. An alternative name for our watch could be Swipe Fee Limits Limiting Consumer Benefits Watch—but that sounds like a federal agency.