ARLINGTON, Va. – In a span of a week, two New York political powerhouses have called for consumers to get fee disclosures on certain debit card transactions. Part of the ongoing contest between the two types of debit transactions – those in which a cardholder uses a signature to validate a debit transaction versus those in which the cardholder uses a personal identification number – drew increased attention last week at both the state and federal level. New York Attorney General Elliott Spitzer's office called New York bank representatives in to explain their practice of charging their cardholders a fee every time they use debit cards for PIN-based transactions at the point-of-sale and Senator Charles Schumer (D-N.Y.) announced intentions to press federal legislation mandating disclosure of such fees. But industry executives say market realities will likely thwart any move to regulate the practice and may move more effectively than any law to end it. Media outlets broke the news, gathered from a leaked letter, that the office of the New York Attorney General had "entered into information gathering discussions" with New York banks about the fees they charge for the transactions. The meetings, as of that time, had not involved any credit unions but a spokesman for Spitzer did not rule out the possibility that they might in the future. "I don't believe the meetings have involved any credit unions, but I can't say there will not be some in the future," said Brad Maione, spokesman for Spitzer's office. "These are ongoing meetings designed to gather information," he said. Maione confirmed press reports that the Attorney General's office had sent a letter to banks in New York which claimed the failure to disclose fees at the POS might break New York law. "We believe that the failure to disclose such a fee at the time of the transaction – as is done at the ATM – may constitute a deceptive practice in violation of the consumer protection laws of this state," the office wrote. At the Federal level, Schumer has signaled his intention to introduce legislation meant to make consumers aware of the fees they are being charged when they use their debit cards which authorize transactions with a PIN. "Encouraging people to use debit cards instead of checks or cash and then springing hidden charges on them is not only dishonest, it's bad business," Schumer said. "If banks want to charge consumers for each transaction, let them know and let them decide whether or not it's worth it. Taking their money without letting them know milks the consumer and breeds resentment against the banks. It's bad for everyone and it should stop." Schumer said he was spurred into going after the practice of charging fees at the point-of-sale after reading a survey from the New York Public Interest Research Group which highlighted the practice. Schumer's legislation would require financial institutions to disclose fees for point-of-sale transactions at the point of the transaction and in checking account statements, and he has said he planned to press the legislation on the Senate floor as an amendment to the popular credit reporting legislation currently pending. How Many Charge? And Why? Although only a minority of financial institutions charges the fee, it would be a mistake to think it was entirely new, according to Cindy Ballard, Executive Vice President with the Houston-based Pulse EFT Association. Pulse is the only EFT association that is owned by its members that includes both banks and credit unions and has earned a reputation over the years of defending the practice of charging fees for ATM transactions. Ballard explained that there have always been some financial institutions that have charged fees for PIN-based transactions at the point-of-sale, but that the number has generally been small. Some credit unions charge the fee, but it's hard to tell how many. A recent Flash Report from NAFCU surveyed members about their debit card issuing and practices found that while 98% of surveyed credit unions issued some form of debit card, only 8% charged their cardholders a fee for transactions and the survey did not break out what sort of fee they charged. Jim Hanisch, Executive Vice President with CO-OP Network, the credit union owned ATM association based in Ontario, California, acknowledged that it was difficult to tell how many credit unions charged the fee, but he echoed other industry executives in putting the fee on PIN-based transactions firmly in the context of the struggle between the two types of cards. "The bottom line is that financial institutions have made more money on the signature-based transactions than on the PIN-based," Hanisch explained, "and that has driven a lot of the interest in helping cardholders choose the cards where they sign," he said. But the settlement between Visa and MasterCard and the large retailers has shrunk the gap between the interchange the signature-based products earn and that of the PIN-based, and may have reduced the attraction of the additional fees. Hanisch and other executives pointed out financial institutions almost always make money on the PIN-based transactions, unless their card programs have some internal costs which undercut the small amount of interchange from the transactions. Hanisch reported that CO-OP Network members, in general, and after switching fees, make about 14 cents per PIN-based transaction, although the interchange amounts have been changing as the industry adopts a tier-based approach to assessing interchange. Tier-based interchange calculations grant larger volume retailers a smaller per-transaction charge than retailers with smaller volumes. Navy Federal, the $19 billion CU based in Merrifield, Virginia, said that it had looked at the possibility of charging a fee for the PIN-based transactions when it heard that other credit unions were doing it, but that the credit union had opted against the fee in favor of getting more of its members to use their cards. David Willis, Vice President of debit cards for the credit union, acknowledged that Navy Federal made money on the PIN-based transactions, and pointed out that, since it belonged to Interlink, the credit union could not charge any fees for the point-of-sale transactions because Interlink does not allow it. "We looked at it, but decided it just wasn't worth it," Willis said. But Tom Reed, CEO of the Encore Cooperative, a credit union-owned financial services cooperative based in Falls Church, Va., estimated that some sort of fee on PIN-based transactions, from someone, might be here to stay. "In this environment, with low rates and tight margins, more financial institutions are looking at fees wherever they can," he pointed out. He also noted that as PIN-based point-of-sale transactions become ever more popular with cardholders, retailers themselves might start surcharging the transactions in which the cardholder receives cash back. Would Regulation Work? Hanisch, Ballard and other executives explained that they doubted whether any proposed regulation, either at the state or federal level, could mandate the disclosures of the sorts of fees that Schumer and other advocates would envision. First, they noted, comparing the surcharges that are disclosed at ATMs and the fees that might be charged at point-of-sale is like comparing apples and oranges. Second, the fees levied at point-of-sale are a lot more complicated than the ATM surcharges. "The ATM surcharges that are disclosed now are the surcharges put in place by the ATM deployers on cardholders which may not belong to their financial institution," Ballard said. "They are not fees the financial institution charges its own cardholders." Ballard explained that difference meant that the surcharges from the deployer are flat rates imposed by the ATM deployer and are therefore relatively easy to disclose. The fees that financial institutions charge their cardholders, by comparison, can vary greatly and even at different times. "There are many different types of accounts and many different type of fees, some that are contingent on the relationship the customer has with their institution," Ballard said. "Having to disclose all that at the POS would be a nightmare. In some cases it would almost be like reading a brochure at the terminal." She also pointed out that most financial institutions already disclose those fees in their account holders' statements. For now, Ballard, Hanisch and other industry executives said they are watching the issue and the possible legislation, but a number expected that the market would act to change the practice well before any legislation made it through the lawmaking process. [email protected]