As the financial services industry starts to sort out the full impact of the Durbin Interchange rules (which are to go into effect in October 2011), one bank (USAA) asked its customers to help decide how to bear the interchange cost increase. The customers and the bank decided to cut the debit card rewards program.

As a direct result of the Durbin Interchange Amendment, USAA Bank decided to end its debit card rewards program Sept. 1. Unlike other banks responding to the new law, USAA Bank is not adding fees or eliminating the benefits that members value most, including free checking and ATM fee refunds.

USAA Bank is widely known as a customer friendly bank, and caters primarily to active and inactive members and families who served in the U.S. Armed Forces. USAA passes many of its profits back to its members. According to the Bank, in 2010, USAA Bank returned the majority of the interchange revenue it collected from merchants to its members in the form of benefits, such as free checking, ATM fee refunds and debit rewards.

Because the new law will reduce these interchange fees, USAA Bank had to re-evaluate the value of offering debit card rewards and other checking account benefits.

According to David Bohne, USAA Bank president,

We carefully considered all options and surveyed members when we began assessing the financial impact of the provision. USAA’s survey found that members favored free checking and ATM fee refunds over debit card rewards. Based on this feedback, we decided to stop the debit card rewards to maintain the other benefits.

According to a press statement, the change only relates to the debit card rewards program, and does not impact other bank reward programs (including its credit card reward program).

What’s the next casualty of Interchange regulation? And when, if ever, will consumers enjoy reduced pricing at retailers as a result of the regulation?