J.P. Morgan Chase & Co. is mulling a $100 cap to help combat new rules.
Banks discussing limiting caps on debit-card transaction sizes may have a standard bearer in J.P. Morgan Chase & Co., which is mulling a $100 cap to help combat new rules.
Limiting the size of a debit-card purchase could force consumers toward credit or charge cards, helping the banks recoup debit-card revenue that will be lost to the new rules. Banks earn higher fees from credit- and charge-card swipes; these fees were excluded from rules curbing debit-card fees.
The banks have been particularly vocal in fighting back against the new debit rules, known as the Durbin Amendment, which are planned to take effect in July. The proposed limit on debit fees would drain $15.2 billion a year in revenue from the industry, said Robert Hammer, who runs R.K. Hammer, a credit-card consulting firm in Thousand Oaks, Calif.
Banks have warned the new rules would wind up hurting consumers. A cap on debit-card transaction size could impact a consumer’s daily life more noticeably than fees.
J.P. Morgan has been discussing a limit among various other solutions to the new rules and hasn’t made a decision, according to people familiar with the matter.
The bank has argued, as have its peers, that the rules make debit-cards unprofitable and fail to cover potential losses from fraud. Banks see limiting the amount that can be purchased on a debit card as a possible way of protecting themselves from the cost of fraud, which current, larger debit-card fees cover.
The new rules will restrict how much banks can charge merchants for debit-card transactions. In December, the Federal Reserve proposed, as part of an overhaul mandated by the Dodd-Frank law, capping debt-transaction fees for large banks at 12 cents, down from an average of 44 cents.
Lenders have repeatedly warned that the proposal, in its current form, will force them to cut benefits on debit-cards and impose new fees and restrictions.
Banks say they are considering many options in response; Bank of America Corp., Wells Fargo & Co. and J.P. Morgan have already begun to revamp debit programs.
Citigroup Inc. said it isn’t planning to cap debit-card transaction amounts at this time.
Changes include axing debit rewards and adding new fees to checking accounts. Some banks also are considering increasing their issuance of prepaid cards, a form of plastic similar to debit cards but excluded from fee limits in the new federal rules.
Other possible changes include curbing the number of debit-card transactions customers can make each month; charging a fee to consumers for each debit transaction; and dividing debit-card services into components and charging merchants for them separately.
In November, Charlie Scharf, head of retail financial services at J.P. Morgan Chase, said at a conference that the bank is structuring its business away from debit. “We will be appropriately paid for the services we provide,” Mr. Scharf said.
Via WSJ
