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With debit card cap, banks look to new fees

Congress last July passed the Durbin Amendment, which capped the fees banks charge merchants for debit card transactions, but a year later, the federal government has delayed implementing the legislation.

Some of the nation’s biggest banks instead are increasing fees for other services, rolling out new charges and eliminating rewards programs, citing anticipated losses from that regulation.

The regulation, slated to take effect on Oct. 1, limits the fees banks with $10 billion or more in assets can charge merchants who process debit cards. The Federal Reserve delayed implementing the measure, initially scheduled to take effect on July 21, after receiving more than 11,000 comments.

Although the legislation, named after U.S. Sen. Dick Durbin, D-Ill., initially limited fees to 12 cents per transaction, the Federal Reserve increased that to 21 cents and up to 24 cents if banks implement fraud prevention measures. But even the higher cap is up to 50 percent less than banks currently charge.

“It used to be for the average transaction, a merchant paid 44 cents,” said Tom Kelly, a Chase spokesman. “The merchant isn’t going to lower prices. They’ll keep the difference.”

Citing an expected $900 million annual reduction in merchant fees due to the Durbin Amendment, Chase said it’s testing higher fees. The bank tested a $4 fee in Texas and $5 in Illinois for ATM users who are not Chase customers. “We stopped the test,” Kelly said of the experiment. “We haven’t disclosed whether that’s going to change our strategy.”

Other banks are joining in a fee-for-all. Capital One is about to raise ATM fees to $3 from $2.75 for non-customers.

“The $3 fee is an industry standard,” Capital One spokeswoman Amanda Landers said. “We haven’t changed any other ATM fees for New York in the last couple years.”

These increases are part of big banks’ strategy to boost earnings.

Chase and Wells Fargo eliminated debit card rewards and are testing monthly debit card fees. Wells Fargo as of October will charge $3 monthly to customers in Oregon, New Mexico, Nevada, Georgia and Washington state who use debit cards.

”It’s too early to speculate if Wells Fargo plans a further rollout to other states such as New York,” said Kevin Friedlander, a Wells Fargo spokesman. “This is a limited market introduction at this time.”

Unlike Chase and Wells Fargo, Capital One doesn’t plan to end debit card rewards or add debit card fees, adding its “customers can continue to earn rewards for their everyday banking activities including debit card usage, direct deposit and paying bills online,” Landers said.

In another attempt to recoup losses from debit card fees, banks are reevaluating free checking accounts.

Bank of America ended fully free checking in Arizona, Georgia and Massachusetts as part of a pilot program to test fee increases, according to the U.S. Public Interest Research Group. Bank of America hiked monthly fees from $9 to $12 in other states when minimum balances aren’t met.

Chase in February also shifted from offering free checking to customers with at least five debit transactions monthly to those with direct deposit of at least $500 and a checking balance of at least $15,000 or $5,000 in savings or investment accounts. “We reviewed our checking accounts,” Kelly said, “and wanted to reward customers who did more business with us.”

TD Bank, meanwhile, stopped picking up the cost its customers incur for using other banks’ ATMs and began charging $2, the same amount Capital One charges. U.S. Bank recently increased those fees from $2 to $2.50.

“How high can they go?” Kelly said of ATM fees. “People have tested different prices. It’s hard to know what will happen. If you’re a customer and you use your bank’s ATM, you don’t care. If you’re a heavy ATM user, it really makes sense to know where your bank’s ATMs are.”

Others said it’s too early to tell how high ATM fees will rise, but there’s no reason to believe banks reached the limit.

“My speculation is it’s a little like water,” Loomis said. “It’s going to find its own resting spot by the time it’s done.”