National Consumer Credit Reporting System Improvement Act of 2003-Continued

NATIONAL CONSUMER CREDIT REPORTING SYSTEM IMPROVEMENT ACT OF 2003-CONTINUED

Mr. SCHUMER. Thank you, Madam President.

I thank Chairman Shelby and Ranking Member SARBANES for the wonderful job they did on this legislation. An important measure such as this that sails through the floor in 1 day is a tribute to the statesmanlike and fine legislative hand of our new chairman of the Banking Committee and, of course, the steady and wise old hand of our former chairman of the Banking Committee and now the ranking member.

I have been ready to offer an amendment on an issue related but not directly on point to this legislation; that is, debit cards. Right now, millions of Americans use debit cards. They are great. You don't need a checkbook when you have a debit card. It solves many problems. It is a real measure of convenience. They are easy and they save a little time. You don't have to go to the bank and get cash. It is a win-win, except for one catch: Most consumers think when they pay with a debit card it is free; that it doesn't cost anything. However, many banks are now charging the consumer when he or she uses the debit card as much as $1.50. In my State of New York, about half the banks charge anywhere between 25 cents to $1.50. When I have asked consumers, they don't know. My wife didn't know.

What I want to do is what I did in the House on credit cards and what I was able to do here in the Senate with ATMs-not
eliminate the fees, because that is up to each bank but, rather, disclose them.

There are a couple of problems with disclosure. One is because it is not the banks that own the machines-the ATMs-rather, it is the stores.

It is a little more difficult to get that information out to the consumer even when the consumer swipes the card. What we have done here is ask the Federal Reserve to within 6 months study this issue and show us how it can be done.

In addition, there is another point our amendment has that we ask the Federal Reserve to study; that is, at least putting it on the monthly bank statement in clear letters what the fees are for debit cards. That is not done now. There are kids in college who were mailed these cards, and they used them to buy a Coke. The Coke was a dollar. The fee was a dollar. If they knew it cost $1, they probably wouldn't do it anymore.

I would like to engage in a colloquy with the chairman of the committee.

As the chairman knows, after a long fight Congress enacted legislation so that every ATM-no matter if it is run by a bank or private operator-tells you when you are being charged. Customers have come to know and expect that warning. But there is no warning when you use your card at a store and use it as a debit card. As often as not, you are charged. Is that correct?

Mr. SHELBY. If the Senator will yield, I understand the concerns. I think it is also true that debit card transactions and ATM transactions have some significant differences. Namely, the retailer owns the debit machine while the bank owns the ATM machine. This makes a "point of sale" disclosure-as we achieved in Gramm-Leach-Bliley-more difficult since banks cannot easily adjust the equipment and the software.

Mr. SCHUMER. I ask unanimous consent that the letter the chairman, the ranking member, and myself are submitting to the Federal Reserve Board be printed in the RECORD.

There being no objection, the material was ordered to be printed in the RECORD, as follows:

U.S. SENATE, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS,
Washington, DC, November 6, 2003.

Hon. ALAN GREENSPAN,
Chairman, Board of Governors of the Federal Reserve System, Washington, DC.

DEAR CHAIRMAN GREENSPAN: We are writing to request a study by the Board of Governors of the disclosure of fees imposed by financial institutions on consumers in debit card transactions. Our request is outlined in the attached document.
As you know, consumers are increasingly using debt cards as an alternative to cash or credit cards. In 2001, there were estimated to be over 250 million bank cards in circulation with a debit function, and today it is estimated that debit payments make up almost 12 percent of retail payments. The reasons for this growth are clear. Debit cards offer convenience for consumers, and they offer substantial cost savings for banks through more efficient electronic processing.

Debit cards can be used by a consumer in two ways. In an online transaction, the consumer enters his/her personal identification number (PIN), and the debit occurs through an electronic transfer of funds over a local debit network, e.g., InterLink or Plus, from the consumer's bank to the merchant's bank. In an offline transaction, the consumer signs his/her name on a receipt, and the transaction occurs over a MasterCard or Visa network linked to the bank.

However, depending on how the consumer chooses to use his or her debit card, banks charge and make different amounts of money. In an offline transaction, banks charge a merchant from approximately 1.5 percent to 1.99 percent of the total value of the transaction, similar to credit card transactions that utilize the Visa or MasterCard networks. For example, in a $100 transaction, the merchant would be charged up to $2.00 for the processing of the transaction over the Visa or MasterCard network. In an online transaction, banks charge the merchant a flat fee of about thirty cents.

As those numbers illustrate, banks typically make more money when consumers use their debit cards in the offline or credit card-like function. In fact, it has been estimated to us that in a typical transaction banks make three to four times more money on offline transactions than on online transactions.

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. This fee comes on top of the flat fee already charged to
the merchant.

However, the consumer may be unaware of these fees at the time of the purchase. He or she has no explicit disclosure of the fee at the point of sale, and no option to accept or deny the additional charge, or to pay cash or use a different payment to avoid the fee. The evidence of the debit car fee shows up only later on the consumer's monthly bank statement. The debit card fees are published together with ATM fees, making 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 growth of debit cards and the rise in debit cards fees makes this an important issue. The number of parties involved in the debit cards transactions-retailers, consumers, electronic payment networks, and banks-makes this a complex issue. As always we appreciate your support and the diligence and expertise of the staff at the Federal Reserve Board in helping us to consider and to address the disclosure of debit cards fees to consumers.

Sincerely,

Richard Shelby,
Chairman.

Paul Sarbanes,
Ranking Member.

Charles Schumer,
United States Senator.

Mr. SCHUMER. Mr. Chairman, I know you have been in support of the Feds doing the study so we can see what to do next year in terms of legislation; I ask if that is amenable to you?

Mr. SHELBY. Absolutely. Senator Sarbanes and I agree with Senator Schumer and support further study of this issue. We have planned and drafted a letter to the Federal Reserve Board asking them to conduct a comprehensive review of this issue.

Mr. SCHUMER. I ask the ranking member for his views on this letter and what we have to do in terms of disclosure on debit cards.

Mr. SARBANES. I share the chairman's view. I think the Senator from New York has spotlighted a very important issue, but probably the best way to proceed now is with this joint letter to the Federal Reserve. Then we would have the benefit of their study of this issue as we move ahead to try to address it.

Mr. SCHUMER. I thank the ranking member. We will make progress on debit cards. I will not go into all the details of the study. The letter is quite detailed. The Federal Reserve is willing to do it.
I make two other points after commending my colleagues on the bill overall. I am proud to be a cosponsor and supporter of this bill. There are two parts of the bill in which I was particularly interested. One is identity theft which has become an epidemic.
When your identity is stolen, it can take years to bring back your credit rating, even through no fault of your own. The criminals are getting very good at identity theft.

I introduced comprehensive legislation in this regard much earlier this year. The chairman has added provisions very similar to those I have introduced. As a result, this bill does a good job. Right now, becoming a victim of identity theft is as easy as saying your ABC's. With this legislation, it will be tougher.

My hometown, New York City, has the unfortunate distinction of being the identity theft capital of the world. I am glad we were able to do something quickly in that regard.

Second, on credit scoring, this is another issue on which the Senator from Colorado and myself worked long and hard. We thank the chairman and ranking member for incorporating that into the legislation.

The bottom line is, consumers have been kept in the dark about what their credit score is and how it is computed. This legislation, by adding the Schumer-Allard provision, lifts the veil of secrecy over credit scores. When a bank is going to charge you more for your mortgage, which could mean hundreds and hundreds of dollars every quarter, much more money every month, now you will be able to find out why and if there is incorrect information as to why you are being charged more. Maybe it is because you have a whole lot of credit cards, for instance, even if you pay your bills on time. You will be able to correct it.

This is fine legislation. I am speeding things along here because I know people want to move quickly. I thank the chairman.