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Federal Reserve Bank of Dallas
2200 N. PEARL ST.
DALLAS, TX 75201-2272

June 24, 2004

Notice 04-35

TO: The Chief Executive Officer of each
financial institution and others concerned
in the Eleventh Federal Reserve District
SUBJECT
Request for Comment on Adequacy of Existing Disclosures
on Debit Card Fees
DETAILS
The Board of Governors is conducting a study about disclosures of debit card fees, at
the request of members of the U. S. Senate Committee on Banking, Housing, and Urban Affairs.
In connection with the study, the Board is requesting public 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 is also requesting 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 is requesting
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.
The Board must receive comments by July 23, 2004. Please address comments to
Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System, 20th Street
and Constitution Avenue, N.W., Washington, DC 20551. Also, you may mail comments electronically to regs.comments@federalreserve.gov. All comments should refer to Docket No. OP1196.

For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal
Reserve Bank of Dallas: Dallas Office (800) 333-4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012;
Houston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810.

-2The public can also view and submit comments on proposals by the Board and other
federal agencies from the www.regulations.gov web site.
ATTACHMENT
A copy of the Board’s notice as it appears on pages 29308–10, Vol. 69, No. 99 of the
Federal Register dated May 21, 2004, is attached.
MORE INFORMATION
For more information, please contact Eugene Coy, Banking Supervision Department,
(214) 922-6201. Paper copies of this notice or previous Federal Reserve Bank notices can be
printed from our web site at www.dallasfed.org/banking/notices/index.html.

29308

Federal Register / Vol. 69, No. 99 / Friday, May 21, 2004 / Notices

FEDERAL RESERVE SYSTEM
[Docket No. OP–1196]

Notice of Study
Board of Governors of the
Federal Reserve System.
ACTION: Notice of study and request for
Information.
AGENCY:

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

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http://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm.
• 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

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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 thirdparty 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
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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Federal Register / Vol. 69, No. 99 / Friday, May 21, 2004 / Notices
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.
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

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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
§ 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 §§ 205.7(b), 205.9(a) and (b).
Initial Disclosures. Under § 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 § 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

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29309

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 § 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
§ 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.’’ § 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
§ 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. § 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

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Federal Register / Vol. 69, No. 99 / Friday, May 21, 2004 / Notices

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 PINuse 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
§ 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 § 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
§ 205.9(b)(3), both discussed above.2
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 pointof-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
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 accountholding entities as well. Although the Board lacks
specific data, it is presumed that those accountholding 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 § 205.9(a)(1) fee disclosure
requirements would not be triggered.

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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 machinereadable 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 31⁄2 inch computer
diskettes in any IBM-compatible DOSor 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

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