[Federal Register: May 21, 2004 (Volume 69, Number 99)]
[Notices]
[Page 29308-29310]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21my04-89]
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FEDERAL RESERVE SYSTEM
[Docket No. OP-1196]
Notice of Study
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Notice of study and request for Information.
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SUMMARY: The Board is conducting a study about disclosures of debit
card fees, at the request of members of the United States Senate
Committee on Banking, Housing, and Urban Affairs. In connection with
the study, the Board solicits comment on whether the existing
disclosures required by the Electronic Fund Transfer Act adequately
inform consumers of fees imposed by a financial institution that holds
the consumer's account and has issued a debit card (``account-holding
institution'') when the debit card is used to make a purchase from a
merchant (or other provider of services). The Board also seeks the
public's views on the need for, and the potential benefits of,
requiring additional disclosures in each periodic account activity
statement to reflect fees imposed by account-holding institutions for
debit card use. Lastly, the Board seeks comment on the benefits of
requiring disclosure of the amount, source, and recipient of each such
fee, as well as a summary of the total amount of such fees for the
period, and calendar year-to-date.
DATES: Comments must be received on or before July 23, 2004.
ADDRESSES: You may submit comments, identified by Docket No. OP-1196,
by any of the following methods:
Agency Web Site: http://www.federalreserve.gov Follow the instructions for submitting comments at http://www.federalreserve.gov/.
.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
E-mail: regs.comments@federalreserve.gov. Include docket
number in the subject line of the message.
FAX: 202/452-3819 or 202/452-3102.
Mail: Jennifer J. Johnson, Secretary, Board of Governors
of the Federal Reserve System, 20th Street and Constitution Avenue,
NW., Washington, DC 20551.
All public comments are available from the Board's Web site at
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as
submitted, except as necessary for technical reasons. Accordingly, your
comments will not be edited to remove any identifying or contact
information. Public comments may also be viewed electronically or in
paper in Room MP-500 of the Board's Martin Building (20th and C
Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.
FOR FURTHER INFORMATION CONTACT: Daniel Lonergan, Counsel, Division of
Consumer and Community Affairs, Board of Governors of the Federal
Reserve System, at (202) 452-3667 or 452-2412. For users of
Telecommunications Device for the Deaf (``TDD'') only, contact (202)
263-4869.
SUPPLEMENTARY INFORMATION:
I. Background
At the request of members of the U.S. Senate Committee on Banking,
Housing, and Urban Affairs, the Board is initiating a study of the
disclosure of fees imposed by financial institutions that hold a
consumer's account and have issued a debit card to access the account
(``account-holding institution''). The Board is specifically studying
the fees imposed by such account-holding institutions when consumers
engage in debit card purchase transactions with a merchant (or other
provider of services), otherwise known as ``point-of-sale'' or ``POS''
transactions. The Board has been asked to consider whether existing
disclosure requirements are adequate and effective in making consumers
aware of the imposition of debit card transaction fees by their
financial institution. Further, the Board has been asked to consider
the possible benefits of requiring additional disclosures in a
consumer's periodic account activity statement that would inform the
consumer of the amount of each fee imposed by the account-holding
institution in connection with a debit card transaction during the
statement period, as well as information regarding the source and
recipient of such fee, along with a summary of the total amount of such
fees for the period.
Point-of-Sale Transactions. When a consumer uses a debit card to
make a point-of-sale purchase, the parties to the transaction are
typically the consumer, the merchant, the merchant's bank, and the
consumer's account-holding bank. The consumer presents a debit card to
the merchant to make a purchase, or ``swipes'' the card through the
merchant's POS electronic reader to initiate the process of having the
purchase amount debited from the consumer's checking account. In order
to enable the account-holding institution to identify the consumer as
provided by current regulation, and authorize the electronic fund
transfer, the consumer is asked either to enter a personal
identification number (``PIN''), for an ``online'' debit, or is asked
to provide a signature, for an ``offline'' debit. If the transaction is
successfully processed, the consumer will receive the goods or services
sought, an account at the consumer's bank will be debited, and the
merchant's account at the merchant's bank will be credited.
This is a simplified description of the debit card transaction
process, as the transaction information described above is commonly
carried over one or multiple networks to obtain authorization for the
transaction, and commonly involves additional third-party participants.
Moreover, the use of such networks and participants can result in the
imposition of fees such as interchange fees that can result in costs
to, or revenue for, the various parties involved.
The number of cards in circulation with a debit function is
estimated to be approximately 287 million, and the number of POS debit
card ``readers'' has risen dramatically. Consequently, the use of debit
cards at point-of-sale--both online (PIN-based) and offline (signature-
based)--has risen sharply since the mid-1990s.\1\ While PIN-based
debit's share of total debit transactions was greater than signature-
based debit's share in the early-1990s, this is no longer true. Both
PIN-based debit and signature-based debit continue to show
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strong growth. The differing costs of, and fees generated by, PIN-based
and signature-based debit transactions have resulted in account-holding
institutions and merchants favoring, and promoting, different methods
of debit transactions.
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\1\ For additional historical and statistical information
regarding the ATM and debit card industry, as well as information on
industry structure, pricing, transaction settlement and processing,
and emerging policy issues, see ``A Guide to the ATM and Debit Card
Industry,'' F. Hayashi, R. Sullivan, and S. Weiner, Federal Reserve
Bank of Kansas City, 2003 (available in electronic form from the
Federal Reserve Bank of Kansas City's Web site, http://www.kc.frb.org
under ``Publications & Education Resources'').
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For instance, as a general matter, an account-holding bank can
receive greater revenue as a result of the interchange fees paid when a
consumer chooses a signature-based debit transaction. Thus, these card-
issuing, account-holding banks encourage the use of offline, signature-
based transactions. Merchants, on the other hand, generally prefer that
consumers choose online, PIN-based debit transactions in order to
reduce their costs-per-transaction by minimizing the interchange fees
they may need to pay.
Congressional Concerns and PIN Fees. In an effort to encourage
their debit card holders to choose signature-based, offline
transactions and offset the revenue lost when their account-holding
customers choose online debit, some account-holding institutions are
charging their cardholders a fee when the customer uses the
institution's debit card to make a point of sale purchase and chooses
the online, PIN-based method (resulting in a ``PIN-use'' fee). The
recent request by some members of Congress that the Board study the
issue of debit fees reflects concern that consumers may be unaware, or
not adequately informed, that their own bank may impose such PIN fees
when the consumer chooses online debit. It may also reflect the belief
that, unlike the various fees and surcharges that a consumer may be
assessed in an ATM transaction, PIN-use fees assessed at the point of
sale may not be adequately disclosed or timely disclosed at the point
of sale, or might be inadequately disclosed in the regular account
statement the consumer receives after the debit purchase date.
As detailed below, the Board solicits comments from all interested
parties on these issues. The Board will consider these public comments
in developing a final report to be submitted to the U.S. Senate
Committee on Banking, Housing, and Urban Affairs in November 2004,
which will address these specific questions, as well as additional
issues expressly identified by the Committee.
II. Existing Fee Disclosure Requirements
The following summary of current disclosure requirements provides
context so that commenters may more fully address the adequacy of
existing disclosures.
The Electronic Fund Transfers Act (EFTA), 15 U.S.C. 1693 et seq.,
enacted in 1978, sets forth the existing disclosure requirements
governing electronic fund transfers (EFTs). The general purpose of the
EFTA is to provide a basic framework for establishing the rights,
liabilities, and responsibilities of participants in EFT systems. The
types of transfers covered by the EFTA include transfers initiated
through an automated teller machine, point-of-sale terminal, automated
clearinghouse, telephone bill-payment plan, or remote banking program.
The statute and regulation require the disclosure of terms and
conditions of an EFT service; the documentation of electronic transfers
by means of terminal receipts and periodic account statements;
limitations on consumer liability for unauthorized transfers;
procedures for the resolution of errors; and certain rights related to
preauthorized EFTs.
The EFTA is implemented by the Board's Regulation E (12 CFR part
205), and these regulatory requirements are interpreted by the Official
Staff Commentary (12 CFR part 205 (Supp. I)). The Official Staff
Commentary facilitates compliance and provides protection from civil
liability, under Sec. 915(d)(1) of the act, for financial institutions
that act in conformity with it. The commentary is updated periodically,
as necessary, to address significant questions that arise.
Generally, the EFTA and Regulation E provide for disclosures to
consumers about fees related to EFTs (including POS transactions) at
three points in time:
In the initial disclosures provided at the time the
consumer contracts for an EFT under Section 905(a) of the EFTA (which
includes POS transfers);
In periodic account statements provided under Section
906(c); and
On receipts provided at an electronic terminal at the time
a transfer is initiated under Section 906(a).
These express statutory requirements are implemented in detail by
Regulation E. 12 CFR Sec. Sec. 205.7(b), 205.9(a) and (b).
Initial Disclosures. Under Sec. 205.7(b), a financial institution
must make initial disclosures at the time a consumer contracts for an
EFT service, or before the first EFT is made involving the consumer's
account. In addition to other information, these disclosures must state
``[a]ny fees imposed by the financial institution for electronic fund
transfers or the right to make transfers.'' 12 CFR Sec. 205.7(b)(5).
As explained in the Official Staff Commentary to this section, the fees
addressed by this disclosure requirement are those fees imposed on the
consumer by the account-holding institution. See Comment 7(b)(5)-3.
Thus, the particular fee that an account-holding institution imposes
when its customer engages in a POS debit transaction must be disclosed
under this initial disclosure requirement.
Periodic Statement Disclosures. Under Sec. 205.9(b), for each
account to or from which EFT can be made, a financial institution must
send the consumer a periodic statement. 12 CFR Sec. 205.9(b). This
statement must be sent for each monthly cycle in which an EFT has
occurred, and must be sent at least quarterly even if no such transfer
has occurred. In addition to other information, this statement must set
forth ``[t]he amount of any fees assessed against the account during
the statement period for electronic fund transfers, for the right to
make transfers, or for account maintenance.'' Sec. 205.9(b)(3).
The Official Staff Commentary to this provision provides additional
clarification that is relevant to commenters, the goals of the
requested study, and to consumers. The fees to be disclosed in the
periodic statement may include fees for EFTs as well as for other, non-
electronic services (both fixed and per-item fees). Significantly,
these fees may be stated ``as a total or may be itemized in part or in
full.'' See comment 9(b)(3)-1. Thus, for example, if an account-holding
institution imposes fees on the consumer for an online POS debit
transaction, these fees must be disclosed in the periodic statement but
may be aggregated with other fees; a per-transaction itemization of
each fee imposed by the card-issuing bank for a POS debit transaction
is permitted, but not required by the regulations.
Disclosures Contained in Receipts Provided at Electronic Terminals.
Under Sec. 205.9(a), financial institutions must make a receipt
available to a consumer at the time the consumer initiates an EFT ``at
an electronic terminal,'' which includes a POS terminal. Sec.
205.2(h). The Official Staff Commentary expressly provides that ``[a]n
account-holding institution may make terminal receipts available
through third parties such as merchants or other financial
institutions.'' See comment 9(a)-2. Consequently, when a debit card is
used at point-of-sale, the merchant provides a terminal receipt that
contains the information that the account-holding institution is
required to provide to the consumer.
Certain information is required to be provided on the terminal
receipt. Section 205.9(a)(1) provides that the amount of the transfer
must be stated, along with other information such as the date the
transfer is initiated, the type of
[[Page 29310]]
transfer, the terminal location, and other information. A transaction
fee, however, must be disclosed on the receipt, and additionally
displayed on or at the terminal, only if the fee is included in the
amount of the transfer. If such fee is not included in the transfer
amount, the receipt need not state the fee and the display requirements
are not triggered.
Thus, by way of example, assume that an account-holding institution
charges its customer a $1.00 transaction or PIN-use fee each time the
customer uses the institution's debit card for an online POS
transaction. If the debit card is used at point-of-sale to purchase a
$20 item, and the ``amount of the transfer'' on the receipt is
identified as ``$21.00'' (that is, the PIN-use fee is included in the
amount of the transfer), then the $1.00 fee must be disclosed on the
receipt and displayed on or at the terminal, or on the terminal screen.
If, however, the ``amount of the transfer'' is identified only as
``$20.00,'' the Sec. 205.9(a) receipt requirements impose no such
disclosure obligation. The fees imposed by the account-holding
institution would still need to be disclosed under the initial
disclosures under Sec. 205.7(b)(5) however, and in the periodic
statement sent to the consumer (in either aggregated or segregated form
along with other fees) under Sec. 205.9(b)(3), both discussed
above.\2\
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\2\ This provision of the regulation was originally drafted to
address fees imposed by entities other than the consumer's own
institution, but was later amended to also include fees imposed by
account-holding entities as well. Although the Board lacks specific
data, it is presumed that those account-holding institutions that
impose a POS debit transaction fee, or PIN fee, do not include such
fee in the ``amount of the transfer'' identified on the receipt, and
thus the Sec. 205.9(a)(1) fee disclosure requirements would not be
triggered.
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III. Request for Comment
The Board requests comments on the extent to which these existing
EFTA and Regulation E disclosures are adequate and effective in making
consumers aware of the circumstances under which account-holding
institutions impose a fee, if applicable, when a consumer uses a debit
card to make a purchase at point-of-sale. In responding to this
request, commenters are asked to address specifically whether the
initial disclosures, the disclosures in periodic statements, or any
disclosures on receipts at electronic terminals, are effective--either
separately, or cumulatively--in providing consumers with sufficient
information about such point-of-sale fee practices. To the extent
commenters believe that enhanced fee disclosures are recommended,
commenters are asked to consider and address whether such disclosures
would be more effective as initial disclosures, disclosures provided as
part of the consumer's periodic account activity statement, or
disclosures included within information available on a terminal
receipt. If enhanced disclosures are recommended, commenters are also
asked to address whether such PIN-use fees should be separately
disclosed, or whether such fees may be aggregated with other disclosed
fees.
The Board also solicits specific comment on the need for, and
benefits of, requiring additional disclosures in the periodic statement
provided by the account-holding financial institution to the consumer.
In particular, if commenters believe that additional periodic statement
disclosures would be beneficial, commenters are asked to address
whether the periodic statement should reflect some or all of the
following:
The amount of each fee imposed by the account-holding
financial institution on the consumer in connection with a debit card
transaction at point-of-sale;
The source and recipient of any such fee; and
A summary of the total amount of such fees for that
reporting period, and calendar year-to-date.
IV. Form of Comment Letters
Commenter letters should refer to Docket No. OP-1196 and, when
possible, should use a standard typeface with a font size of 10 or 12;
this will enable the Board to convert text submitted in paper form to
machine-readable form through electronic scanning, and will facilitate
automated retrieval of comments for review. Comments may be mailed
electronically to regs.comments@federalreserve.gov. If accompanied by
an original document in paper form, comments may also be submitted on
3\1/2\ inch computer diskettes in any IBM-compatible DOS- or Windows-
based format.
By order of the Board of Governors of the Federal Reserve
System, May 18, 2004.
Jennifer J. Johnson,
Secretary to the Board.
[FR Doc. 04-11527 Filed 5-20-04; 8:45 am]
BILLING CODE 6210-01-P