NEW YORK - While the Durbin Amendment reduced sharply how much large banks like Wells Fargo and Citigroup can charge merchants for debit card transactions, it exempted smaller banks, those with less than $10 billion in assets. As a result, they have been collecting fees that are often three times those imposed on cards by large banks, the Wall Street Journal reports.

The WSJ notes that a $100 sweater purchased with a debit card would incur a fee of 95 cents on a card issued by a smaller bank and only 26 cents for those issued by big banks. As a result, the big banks are upset at the law, which is a "gross miscarriage of justice," according to J.P. Morgan Chairman and Chief Executive James Dimon, adding the new rule cost the company $350 million of revenue last quarter.

In response, small banks maintain that their "advantage" will disappear over time as merchants steer customers away from those more costly debit cards by promising cash discount incentives.

Regardless, merchants in rural areas seem to be hardest hit by the rule as their customers predominantly use cards issued by the Durbin-exempt smaller banks. Indeed, Heartland Payment Systems Inc. confirmed that retailers in Montana, Alaska, and North Dakota are benefitting the least from Durbin.

"I think the law should apply to all banks," said Linda Phillips, who owns a drugstore in Lamoni, Iowa, adding that half her customer??s debit card purchases are used with cards issued by small lenders.

Bankers maintain the system will realize additional uncertainty after April 1, when all U.S. banks and credit unions must offer retailers more choices of companies used to process debit card transactions, a move that is expected to lower interchange fees further.

"It is a short-term advantage," said Jeffrey Szyperski, chief executive of Chesapeake Bank, a unit of Chesapeake Financial Shares Inc.

For more on swipe fee reform, see "Courting the Fed Over Swipe Fees" in the current issue of NACS Magazine.