JPMorgan Chase & Co. is considering limiting the size of purchases allowed on its debit cards in response to the Federal Reserve Board's proposed cap on interchange fees.
Banks already have added checking account fees, and many analysts expect them to go further to recoup revenue lost to regulation by charging customers for using their debit cards and limiting the number of purchases they can make in a month.
"All institutions are forced to consider how to find revenue to make up for losses here because they still have to maintain really strong fraud prevention programs, they have to maintain really strong … internal operations [and] they need to maintain enough revenue to support services they provide consumers every day," said Ken Clayton, the senior vice president and general counsel for card policy at the American Bankers Association.
Though some of the changes may help banks maintain profitability, they are also likely to attract regulatory scrutiny.
"I think, if the banks are really heavy-handed about how they do their fees, then all that will happen is, Congress will come back and say, 'OK, you can't charge that fee,' or 'You can't put a cap on debit card transactions,' " said Aaron McPherson, a practice director at IDC Financial Insights in Framingham, Mass.
There is a notion among some in the banking industry that, "by screwing the consumer, they're going to cause a backlash that is going to force Congress to change the law," McPherson said.
Some took this approach before the Credit Card Accountability, Responsibility and Disclosure Act was passed in 2009 — causing the legislation to get tougher in some regards, he said.
At hearings on Capitol Hill Thursday, some legislators and regulators raised concerns about what impact the Fed's proposed debit interchange cap of 12 cents per transaction would have on the cost of consumer banking products. The current average cost of debit interchange is 44 cents per transaction, according to the Fed.
The reduction is expected to produce a loss of up to $14 billion in revenue per year for debit card issuers.
Some legislators suggested that the Fed delay implementation of the rule to allow more time to study its effect. The Dodd-Frank Act required the Fed to draft final interchange rules by April 21, and they are supposed to take effect July 21.
JPMorgan Chase, which said it expects to lose $1.3 billion in revenue under the debit interchange rules, recently raised balance requirements that checking customers must satisfy in order to avoid a monthly fee.
Charles Scharf, the New York banking company's chief executive of retail financial services, said at its investor day on Feb. 15 that it is also considering limiting the size of transactions consumers can make.
If transactions were for more than a certain amount, "we might just not let it be paid for on the debit card because the fraud risk is too high," Scharf said.
The current Fed proposal does not take into account fraud costs that issuers incur on debit transactions, though the central bank is seeking comments on whether to allow for these costs.
The New York Post reported Friday that, in addition to JPMorgan Chase, Citigroup Inc. and Bank of America Corp. are considering transaction-size limits of $50 to $100. The article did not cite a source.
A spokesman for JPMorgan Chase declined to comment on the story. A spokesman for Citi said in an e-mail Friday that the bank does not limit the size of debit transactions and is "not considering any changes at this time."
A Bank of America spokesman declined to comment on the story but in an e-mailed statement said the proposed rules would increase the "cost of their everyday debit card transactions."
"If banks cannot recapture their fraud-prevention costs, it is likely that a lower percentage of transactions at the point of sale would be approved," B of A said.
In 2009, the average size of a signature debit transaction was $37 and the average size of a PIN-debit transaction was $39, according to a study released in December by the Federal Reserve banks.
Some precedent exists for charging consumers fees for debit card use, McPherson said. Some banks, for example, have charged small amounts for transactions made using a PIN instead of a signature. PIN transactions yield less interchange revenue for banks than signature transactions.
