The Illinois Democrat had pushed legislation, which went into effect a week ago, that limits the fees big banks collect from merchants, and he now finds himself the fall guy for Bank of America’s new $5 monthly debit card fee. His response? He ranted and raved and suggested that consumers “get the heck out of that bank.”

But even as Bank of America and other institutions are adding fees and other restrictions, a company called PerkStreet, which you may have read about in this column before, is hoping that those Bank of America customers will run to its Web site. PerkStreet gives checking account customers as much as 2 percent back on their purchases when they use their debit cards.

Meanwhile, a company called BancVue works with community banks and credit unions to offer checking accounts that can yield more than 3 percent in interest on deposits for people who use their debit cards a lot. Soon, the company asserts, the total number of branches among all of the institutions that offer its rewards checking accounts will equal that of the 10th-largest bank in America.

So the big banks make you pay, and the most aggressive of the little institutions want to pay you. What on earth is going on here, and can this possibly continue?

First, let’s be clear about what we talk about when we talk about free checking. As Ron Shevlin, an analyst at Aite Group, explains it, you can just as easily make a case that free checking will always exist as you can that it never existed in the first place.

“If I bring enough money and accounts, they are not going to charge me,” he said. “They would be crazy to.” Indeed, that is still the case with Bank of America. If you have a mortgage with the bank or $20,000 on deposit, the $5 fee will not apply.

Even when nearly everyone had free checking several years ago, however, there were all sorts of questionable activities going on behind the scenes to pay for it. Overdraft fees were a big one. A.T.M. fees for using the wrong machine were also lucrative.

And then there are the merchants who have generally paid far more to the banks for the privilege of accepting their debit cards than the service actually costs. Those fees helped pay for free checking, but they probably contributed to slightly higher prices in the store.

The outrage over those merchant fees is what led Senator Durbin and his colleagues to limit what financial institutions with over $10 billion in assets can collect from merchants when customers use debit cards. Any checking account provider smaller than that, including PerkStreet and BancVue’s partners, can continue collecting higher fees. Because they get more fees, it helps them offer better checking account terms.

Indeed, both companies are built in no small part on the backs of those merchants and the fees that they pay. PerkStreet offers a free checking account and 2 percent back on all debit card purchases (with no monthly or annual limits) to people who keep an average of $5,000 in a checking account. On days when you fall below that figure, you get 1 percent back, which is still a good deal for a debit card rewards program.

Dan O’Malley, PerkStreet’s co-founder, would not say what percentage of customers regularly earned 2 percent, though he said that the number was “meaningful.” I’d guess it’s less than half. He achieves further savings by handing out the refunds only via gift cards, most of which he obtains at a discount to their face value.

The catch for PerkStreet customers is that they have to sign for their purchases to get the rewards. (Recurring charges on the debit card from monthly billers earn rewards, too.) If customers punch in a PIN instead, PerkStreet usually gets less in fees from the merchants, so it generally doesn’t give customers rewards when they do that.

Mr. O’Malley also would not say how many accounts the company had at the moment. As big banks have made changes in recent months, however, PerkStreet has tripled its account acquisition rate, he said. Last Friday, the day after Bank of America’s announcement of the $5 fee, the acquisition rate doubled again. On Saturday, it doubled yet again.

BancVue’s checking accounts, which it encourages bank and credit union customers to call “Kasasa,” can offer high interest or rewards, depending on which platforms the partner institution wants to adopt.

The banks and credit unions decide how much interest to pay, and it can top 3 percent these days. The catch is that they generally limit how much money you can keep there earning that rate. Plus, you have to use your debit card at least 10 or 15 times a month.

Most don’t require customers to sign for purchases, though. The theory here is that once you make people use the debit card 10 or 15 times a month, they’ll put it at the top of their wallet and use it 20 or 30 times a month. So whether they sign or use a PIN, enough money rolls in from the merchants to pay for the high interest. (Some people may overdraw their accounts more often with heavy use, which also helps on the profitability front.)

In reality, according to Carolyn Jordan, a senior vice president at Neighborhood Credit Union, which has branches in and around Dallas, only half of people who sign up for its Kasasa accounts will make the required number of debit transactions in any given month. If they don’t, they earn less, so that helps sustain the program.

Article source: http://feeds.nytimes.com/click.phdo?i=838f898a61aa50879397091803511a51