Banks Mislead Consumers on Debit Card Fees

NRF filed comments with the Federal Reserve on July 23, arguing that many banks do an inadequate job of disclosing to customers that they might be charged a fee if they enter a PIN number when using a debit card in a retail store. The Fed is conducting a study of debit card fees at the request of the Senate Banking Committee, asking among other questions whether existing disclosures required under the federal Electronic Funds Transfer Act adequately inform consumers of fees imposed by financial institutions when a debit card is used to make a purchase from a merchant. NRF noted in its comments that rules and conditions for PIN fees are often included in the fine print of annual statements, written in legal jargon along with a myriad of other disclosures. In addition, monthly bills often make the fees appear to be charged by the retailer rather than the bank that issued the debit card, NRF argued. In a hypothetical example cited in the comments, a statement might include a line item indicating Greenway Supermarket - Debit Purchase - $54.13 reflecting the amount of an actual purchase, followed by Greenway Supermarket - PIN Debit Transaction Fee - $1.00. The second entry reflects a fee charged by the bank, but customers often read it as a fee charged by the retailer. Customers using a Visa or MasterCard-branded debit card issued by their banks have the option of signing for a debit transaction or punching a PIN number into a keypad next to the cash register. Retailers often encourage customers to use the PIN, however, because retailers usually pay a far lower transaction or interchange fee for a PIN transaction than a signature transaction. Retailers also prefer PIN transactions because the secret PIN number is an added security feature while a signature can easily be forged. Many banks have responded by charging customers a special fee for a PIN transaction -- typically 50 cents to $1.50 -- helping make up for the lower interchange fee at the customers expense. The issue has received increased attention because of last years settlement of a 1996 lawsuit brought by NRF and major retailers against Visa and MasterCards debit card practices. Among other results, the settlement required that debit cards be clearly labeled as such to make it easier for retailers to distinguish them from credit cards. In the past, it was often difficult, if not impossible, to distinguish one from the other. In the July 23 comments, NRF asked the Federal Reserve to require any bank that charges a fee for PIN transactions to fully disclose the fee it will charge and the name of the bank that will receive the fee. The bank should be required to reveal that it is already receiving an interchange fee, and to bear all costs of disclosure, including any hardware or software the merchant would be required to install, NRF said. If banks are not required to make meaningful disclosure and pay for related costs, they should be barred from charging PIN fees, NRF said.