The National Retail Federation has asked the Federal Reserve Board to prevent banks from misleading customers into believing that fees charged for using a PIN number when making a debit card purchase in a retail store are imposed by the store rather than the bank.
"Annual statement disclosures are insufficient--they get buried among a host of other disclosures and they are rarely clear," NRF Senior Vice President and General Counsel Mallory Duncan said. "Only a concrete disclosure at the point of sale will make it clear and allow consumers to effectively comparison shop among banks and encourage efficiency in the marketplace."
"Customers come to us with their bank statements and express their surprise--to put it mildly--that they have been charged for entering their PIN," Duncan said. "Once we overcome their disbelief and explain the true source of the charge, the customers' anger is immediately directed at their banks. But this job should not be the retailer's responsibility."
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.
"We know this because our customers come into our stores statement in hand and demand that we refund the dollar we allegedly have charged them for entering their PINs," Duncan said.
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 people 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.
In addition to confusing customers, banks' practice of charging a fee for PIN use discourages consumers from using the cheaper, more secure form of payment, Duncan said. "It does not take many of these experiences to train consumers to swear off PIN debit cards," he said. "Consumers will not consciously choose to spend an extra dollar to enter their PINs if they believe they have an opportunity to avoid the charge."
The issue has received increased attention because of last year's settlement of a 1996 lawsuit brought by NRF and major retailers against Visa and MasterCard's 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.
The National Retail Federation is the world's largest retail trade association, with membership that comprises all retail formats and channels of distribution including department, specialty, discount, catalog, Internet and independent stores as well as the industry's key trading partners of retail goods and services. NRF represents an industry with more than 1.4 million U.S. retail establishments, more than 23 million employees - about one in five American workers - and 2003 sales of $3.8 trillion. As the industry umbrella group, NRF also represents more than 100 state, national and international retail associations.
