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Banks react to Durbin losses, steer customers towards prepaid

As part of an effort to recoup revenue losses resulting from the Durbin Amendment, more banks have begun to offer prepaid cards.

The Durbin Amendment, a provision of the 2010 Dodd-Frank Act, caps the interchange or “swipe” fee — the amount a bank can charge a merchant to process a debit transaction — at 21 cents.

The Durbin Amendment costs large banks approximately $8 billion and small banks about $329 million every year, The Street reports.

To combat falling revenues, banks have experimented with new fees, including controversial fees on basic checking accounts, which have led many angry bank customers to close their accounts.

Fitch Ratings recently said that the marketing of reloadable and prepaid cards will likely increase as a result due to the lack of payment options available to under-banked and un-banked customers. In 2011, American Express introduced a prepaid card that comes with lower fees, and JPMorgan recently unveiled the Chase Liquid prepaid Visa card that carries a monthly fee of $4.95, though the card can be acquired for free if it is linked to a Chase checking account.

Prepaid cards are exempt from the Durbin Amendment, so banks have begun to steer customers towards these card options rather than checking accounts and the once-popular rewards card, according to The Street.

The fees associated with the cards, however, can be complex and end up being more costly to the consumer than a basic checking account. A recent study by Consumer Reports found that some prepaid cards cost between $9 and $19 per month if the cardholder sets up direct deposit and $19 to $29 per month without direct deposit, The New York Times reports.

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