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| The Basics | Debit card fees sneak up on shoppers
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More banks are tacking on point-of-sale fees -- and aren't adequately warning customers, some groups say. Watch your bank statement to find out.
By Bankrate.com
Swipe your debit card at the checkout register and there's an increasing chance that more than the purchase price and tax will be subtracted from your checking account.
A fee for using the debit card also may be deducted. Debit-card fees have been around a long time, but they used to be rare. Now they're much more common.
The catch is that the fee is assessed only if you treat the purchase as a debit and use your PIN to authorize the transaction. Press the "credit" key, sign your name on the receipt and no fee is charged.
Using a PIN could cost you
In a survey by the New York Public Interest Research Group, 89% of the banks surveyed tack on a point-of-sale fee of anywhere from 10 cents to $1.50 for PIN-based debit transactions. While the survey looked only at New York-area banks, people all around the country are finding these debit-card fees on their bank statements.
Just as with credit cards, retailers usually pay a fee for the processing of a debit card transaction. NYPIRG says a flat fee of 7.5 cents to 10 cents is paid when the PIN is used and the transaction is processed "online." If the customer signs for the purchase, it's processed "offline" and the fee can be up to 2% of the transaction.
It's easy to see why many banks, which receive a significant chunk of that fee, want customers to press "credit" and sign for their debit card purchases. Customers who sign the receipt not only aren't charged a fee, they often qualify for some sort of perk such as free air miles. Use your PIN and all you get is your grocery bill and a fee.
A question of disclosure
At issue is whether the debit-card fees are adequately disclosed. The Senate Banking, Housing, and Urban Affairs Committee has expressed concern that consumers may not be aware of the fees until it's too late. In other words, not until they see it on their monthly statement. As a result, the Federal Reserve is taking a look at debit-card fee disclosure and is giving the public a chance to voice their gripes.
Banks are required to disclose the fee in the information you receive when you get a debit card. The fee is also on your monthly activity statement. But unlike at ATMs, where you're notified that a fee will be imposed with the transaction, there's no such notice on a debit keypad at the point of sale.
Nessa Feddis, senior federal counsel at the Washington, D.C.-based American Bankers Association, says the current disclosure rules are adequate.
"I just don't see how people can miss them. If you miss the first one, you'll see it on your periodic statement. It's hard to see how you can make them any more explicit."
Feddis indicates it could be a long time before point-of-sale devices will be able to tell a customer whether they'll be charged a fee -- or how much.
"The system isn't set up that way. The system would have to have access to everybody's account. The network doesn't know whether my account is charged for a point-of-sale transaction. All the merchant gets back when he submits a transaction is a yes or a no -- the transaction is approved or declined. Point-of-sale machines are not smart machines; they're not as smart as ATMs."
Ben Edmonds, executive director at the Chicago-based Coalition for Consumer Rights, says point-of-sale machines should be upgraded if it's technologically feasible for them to have the fee information.
"The industry needs to set a goal, say, 10 years down the road; the units need to be replaced. Set a goal for that disclosure. In the short term, some kind of notice should be attached to the debit card reader alerting the customer that they may be charged a fee."
Everyone gets penalized
Ironically, signing for a purchase to avoid the fee may end up costing consumers more money. Ed Mierzwinski, consumer program director at U.S. Public Interest Research Group and a prominent critic of many of the fees imposed by banks, wants better disclosure but says it's a two-sided issue.
"Disclosure will help the customer save money, but it will lead to more signature-based debit and that costs everyone more in the long run. If you look at why they're charging the fee, it's not to make money, it's to drive you to signing. They make more money -- not from you, but from the merchant. If more people use signature debit, the price of all goods and services for all consumers is going to go up."
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