Senators want to know more about debit card fees. Is it politicking, or are current disclosure rules inadequate?
Few debit card issuers charge their cardholders for initiating purchases with personal identification number-based cards, and when they do, customers generally can avoid the fees by maintaining minimum balances or by having certain types of accounts. Several members of the Senate Banking Committee, though, want to determine the prevalence of issuer charges for PIN-based purchases and whether banks disclose them.
At the senators' request, the Federal Reserve Board in late May launched a study of financial institutions' disclosure of fees charged for PIN-based purchases. In the study, the board will examine to what extent issuers charge customers for PIN-based purchases and the feasibility of requiring real-time disclosure of such fees at the point of sale. The Fed also is accepting public comment about issuers' existing fee disclosures until July 23.
A May survey by CCM sister publication ATM&Debit News of 26 debit card issuers found that eight charge at least some customers for PIN-based purchases (chart, page 44). When charged, the fees generally were either 25 cents or 50 cents per transaction.
Requesting the Fed study were three members of the Senate Banking, Housing and Urban Affairs Committee-Chairman Sen. Richard Shelby, R-Ala.; Sen. Paul Sarbanes, D-Md.; and Sen. Charles Schumer, D-N.Y. In a letter to Fed Chairman Alan Greenspan, the senators cited the "three to four times more money" debit card issuers earn when their cardholders use their signatures to initiate purchases instead of PINs.
"In part to make up for this revenue differential, banks have introduced new debit card fees in the form of a charge to the consumer for each PIN-based, online transaction he or she makes," the letter states. "However, the consumer may be unaware of these fees at the time of the purchase."
The committee members noted that point-of-sale fees might be published together with automated teller machine fees the issuer may charge, which could make it difficult for the consumer to distinguish or understand the charges. "Many consumers end up calling the retailer to complain about the fee in the mistaken belief that it was the retailer, not their bank, that initiated the charge," the letter states.
Rules governing debit card issuers' fee disclosures are outlined in the Electronic Funds Transfer Act. The implementing regulation for the act, Regulation E, requires the initial disclosure of the terms and conditions of an EFT service, including fees.
Nessa Feddis, senior federal counsel at the American Bankers Association, says most of what the Fed will find in its research was cited in a 2000 General Accounting Office report on the disclosure of so-called "foreign" fees debit card issuers charge when their customers use other banks' ATMs.
"The GAO did a study on almost the same issue," she says. "It had to do with ATM fees, but they are analogous to point-of-sale fees."
In its report, the GAO noted that real-time disclosure of foreign-ATM fees was possible, but it would require extensive restructuring by all ATM industry participants. The estimated conversion costs for hardware and software, the report notes, ranged from $5 million for a large third-party processor to tens of millions of dollars for large banks. The process would take two to three years to implement, and the costs could induce some ATM operators to shut down their businesses.
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