reward cards loyaltyDebit rewards programs arealive and kicking despite their predicted death via the DurbinAmendment, according to a new study by Mercator Advisory Group.

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The Durbin Amendment, which took effect in 2011 as part of theDodd-Frank Act, reduced debit interchange fees on card purchases, causing manyto predict the demise of debit rewards programs in order to make upfor lost revenue. But five years later, 50-60% of financialinstitutions in the U.S. offer debit rewards, Mercator found.

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“We're seeing a return to checking accounts, for starters,” saidSarah Grotta, the director of Mercator's debt advisory service. “Aswe were going through the recession, we saw individuals leavingfinancial institutions as a whole, leaving checking accountsbehind. Now they're starting to return, so with checking accountsyou have a return of debit cards.”

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The survey included the nation's 25 largest credit unions, andthe number offering debit rewards increased from eight to 10,Grotta said.

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First Credit Union offered a debit rewards program for the firsttime and Golden 1 dropped its debit rewards program, she noted. Twocredit unions charged for their debit rewards programs: SecurityService FCU ($2 a month), and Teachers FCU ($4.95 a month, thoughits program also has “other relationship aspects,” Grottasaid).

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Security Service FCU, headquartered in San Antonio, Texas, has$8.3 billion in assets and about 915,000 members; Teachers FCU,headquartered in Hauppauge, N.Y., has $5 billion in assets andabout 246,000 members.

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About 22% of exempt organizations – those with assets below $10billion – offer merchant-funded debit rewards programs, she said.On the regulated side, 31% do. Mercator also found that largerinstitutions are leaving points programs and drifting towardmerchant-funded programs. Cash-back programs seem stable for now,likely because consumers prefer cash rewards, Grotta said.

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Either way, rewards programs are associated with higher debitcard use, especially for young adults, according to the study.“When we surveyed folks and asked them, 'Does this really make adifference?' they would say categorically, by a pretty decentmargin, that yes, debit rewards would change their behavior,”Grotta noted.

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Now, debit rewards programs may be a competitive necessity forcredit unions, Grotta warned.

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“Taking a look at encompassing debit rewards into your portfoliois probably going to be pretty important, but I would say yes,there's an expense aspect to that – but there's a lot to be saidfor the other side as well,” she said. “I think it would be areally valuable trigger to creating that deeper relationship withconsumers.”

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