Debit-card users Stuck w/PIN fees

http://www.consumerreports.org/main...7&FOLDER<>folder_id=18151&bmUID=1021035626906


FRONTLINES
June 2002


Debit-card users Stuck with new PIN fees


Just when you thought banks couldn't possibly come up with another fee, here's another fee: a charge for certain debit-card withdrawals.

Early this spring, KeyBank informed some customers that it would charge 25 cents each time they punched in their PIN to pay with their MasterCard debit card. They could save the quarter, however, by pressing Credit, not Debit, on the keypad. They'd have to sign their name to the invoice as with a credit card, but the money would still come out of their checking account, as with any debit card. Computers would sort it out.

Maybe you've encountered this PIN fee, or will soon. Of the 10 banks that issue the most debit cards, 5 now charge some customers 25 cents to $1.50 each time they use a PIN. Other banks offer incentives to steer customers away from using their PIN. CitiBank's debit card earns air miles, but only when you sign. Elsewhere, "Skip the PIN and Win!" promotions offer customers a chance to win cash or, in one case, a Chrysler PT Cruiser if they press Credit and sign.

Behind all this is a big-money tug-of-war between merchants and the credit-card and debit-card giants, Visa U.S.A. and MasterCard International. Banks are aligned with Visa and MasterCard. More on that later. As a consumer, you are a virtual bystander, but it behooves you to know what's going on.


WHAT'S AT STAKE

Debit cards were once solely the province of banks, and paying by PIN was the routine, handled over regional banking networks such as NYCE or MAC. In recent years, the credit-card powerhouses have muscled in. Most debit cards today bear a Visa or MasterCard logo. The regional banking networks still buzz whenever you pay by PIN. But when you sign, it's the credit-card networks that carry the traffic. At stake are billions in transaction costs.

"There are a lot of fingers in the pie: issuing banks, merchants' banks, networks, support people," says Robert McKinley, chief executive officer of CardWeb.com, which tracks bank cards. But, he says, it's a pocketbook issue for merchants. On a PIN transaction, the store pays a flat 20 cents; on a signature transaction, it pays 1.9 percent of the total. You spend $100 with your debit card, and the store pays either 20 cents or $1.90. While merchants want you to use your PIN, banks don't. Your bank takes about half of the merchant's fee, McKinley says, so naturally it wants your signature, which carries the higher merchant's fee.

A roster of retail trade groups and stores are in federal court fighting MasterCard and Visa, which they say force them to take those branded debit cards along with credit cards. The case could recoup billions in transaction costs if the merchants prevail. If they don't, and the trend away from PINs continues, the higher merchant fees could raise the costs of goods and services for everyone. So where does this leave consumers?


YOUR OPTIONS

You could just use a credit card and avoid the issue, but debit cards let you avoid credit-card interest and are more convenient than writing a check. Users also like the option of getting cash back with a debit-card purchase. Protections on lost or stolen debit cards are about the same as on credit cards, according to the American Bankers Association. You're typically liable for no more than $50 if you notify your bank promptly, and banks often forgive that.

It's more hassle, however, when you lose a debit card. A thief could empty your checking account without even knowing your PIN, all by signature transactions. Many banks will eventually restore the money in your account, but the investigation could take some time. In the meantime, you'd be in a tight spot.

Consumers Union believes PIN transactions are more secure than those requiring just a signature and encourages merchants to insist on PINs for debit cards. Since the trend is quite the opposite, protect yourself by following the tips in the box below.


WHAT YOU CAN DO

Know your liability, and the deadlines and procedures for notifying the bank should your debit card be stolen or lost.

Closely monitor activity on your debit card. Some banks let you check using an automated phone line or the Internet.

Report lost or stolen cards right away.

Avoid using debit cards over the Internet or for any goods to be delivered later. By law, credit cards offer "chargeback" procedures for merchandise that isn't delivered, or isn't delivered as advertised. Debit cards are like checks--you have no leverage once money leaves your account.