US debit fee cap can help small banks - Durbin

* Durbin says small banks can win customers from big banks

* Bank of America says its new fee was needed

* Sen. Corker downplays any renewed effort to repeal cap

Oct 4 (Reuters) - Senator Dick Durbin urged smaller U.S. banks and credit unions on Tuesday to grab new debit card business after Bank of America (BAC.N) hit customers with new fees to compensate for a cap on swipe fees that he sponsored.

New limits that went into effect on Oct. 1 restrict the amount banks can charge merchants for accepting customer debit cards, cutting the average transaction fee by nearly half.

For months, retailers, card network companies and big banks brawled in Washington over the fees, as retailers painted consumers as victims of the billions of dollars in debit card processing fees that banks charge merchants.

Growing evidence suggests consumers will bear the brunt of the measure through new banking fees, but Durbin has stuck to his guns, highlighting the benefits for small banks in a call to reporters.

"It means an opportunity for these banks and credit unions who I hope will treat their customers a lot better than Bank of America," said Durbin, who has criticized that bank for announcing it would charge customers who make debit card purchases five dollars a month, starting next year.

Durbin's comments echoed a letter the Democrat sent to small banking organizations in his home state of Illinois.

"Now is the moment for smaller banks and credit unions to make crystal clear to these consumers the superior benefits and customer service that your institutions provide compared to the Wall Street giants," he wrote. "I strongly urge your institutions to seize this competitive opportunity."

Bank of America last week announced the new fee to offset $2 billion in lost annual revenue because of the fee cap. Durbin accused the bank of trying to reap a windfall profit.

Bank of America is "trying to capitalize on this change in the law by pointing a finger at me and then saying they are going to penalize their customers," Durbin told reporters on Tuesday.

The limits set by the Federal Reserve, under part of last year's Dodd-Frank financial oversight law, will cost banks $6.6 billion in annual revenue, according to an August study by Javelin Strategy and Research. The Fed dropped the average swipe fee they earn from 44 cents to 24 cents.

Bank of America said the new revenue measures were needed.

"New regulations on debit card interchange fees - which provide no apparent benefit to consumers - will further reduce revenue by additional billions of dollars," said Lawrence Di Rita, a spokesman for Bank of America. "Our new fee structure will restore a portion of that lost revenue through clear and transparent pricing."

Representative Brad Miller, a Democrat from North Carolina, proposed legislation on Tuesday that would make it easier for consumers to move their money out of big banks. It is not clear that his measure will advance in the Republican-controlled House of Representatives.

Bankers have reacted angrily to Durbin's criticisms, saying they have said all along that banks would have to find ways to offset any revenue losses.

"Recent announcements from banks across the country regarding new fees for debit purchases and eliminating free checking are all widely-predicted consequences from the government price controls in the Durbin amendment," Richard Hunt, president of the Consumer Bankers Association, said in a statement on Tuesday.

In June, the Senate voted down an effort led by Democratic Senator Jon Tester and Republican Senator Bob Corker to delay the Fed rule from going into effect.

On Tuesday, Corker said he did not think there would be a renewed effort any time soon in the Senate to try to repeal or change the swipe fee cap. (Reporting by Alexandra Alper and Dave Clarke; Editing by Tim Dobbyn)