JAMES JUDD
Card ‘Tug of war’
Approximately 100 attendees from financial associations in Massachusetts dedicated to keeping their consumers informed about the latest trends and products in the banking industry recently gathered at an event sponsored by the Federal Reserve Bank of Boston in conjunction with National Consumer Protection Week to discuss new ways of banking for consumers and banks.
In panel discussions ranging in topics from credit cards to check imaging, Massachusetts community groups, bankers and industry officials from around the state engaged in question-and-answer sessions with industry analysts and legal experts.
The program – “New Ways to Pay – But At What Price?” – is part of the Boston Fed’s annual program on consumer protection in the financial services industry. This year, the Boston Fed also published an Identity Theft booklet aimed at educating consumers on how to protect themselves and their money.
“This is a timely conference and a topic of great importance,” said Cathy Minehan, president and CEO of the Federal Reserve Bank of Boston. “There are significant changes in the [United States] payment system and how [those changes] affect consumers are important to businesses. Likened to the plumbing industry of the U.S. economy – no one notices [the payment system] unless something goes wrong.”
Minehan said some consumers are still attached to the paper checking system but the industry is changing and turning toward electronic systems, and consumers need to be educated on their rights and their available choices as change occurs.
“Consumer preference is leaning toward Web-based payments, debit cards and credit cards … and change has to be approached with a protection that is viable on all sides,” said Minehan. “These changes are beneficial and will reduce the cost overall, but we need to come up with more security [initiatives].”
Minehan said the banking industry must educate consumers on privacy and identification fraud, identifying the areas in which fraud may occur, and the process through which debit and credit payments are made electronically.
Paul Horwitz, community affairs specialist at the Federal Deposit Insurance Corp., said he was surprised at how many consumers do not know the difference between credit and debit cards and said, “Frankly, there weren’t very many people who can tell me why [credit cards and debit cards] do what they do. This leads to [the need for more] education.”
On the first panel, members of the financial services industry discussed the importance of Regulation Z, which implements the Truth in Lending Act for credit cards, and Regulation E, which extends the Electronic Fund Transfers Act to include debit cards.
James Judd, executive vice president of NYCE Corp., said there are a variety of ways for consumers to access their accounts through credit and debit accounts, but the question most consumers ask is, why do I care?
Simply put, “Because of the dollars and cents,” said Judd.
“Different institutions have different pricing structures … and consumers are finding themselves influenced by the card,” said Judd. “Consumers are experiencing a tug of war between the issuer of the card and the retailer.”
Credit or Debit?
Judd said that the main difference between consumers using their credit cards or debit cards at retail stores is often steered by subtle pressure applied by retailers, who themselves are influenced by card issuers through contractual agreements.
“Consumers are increasingly finding themselves being influenced by the issuers of the card to sign for the transaction [via a standard credit card rather than using a debit card and pin number] because it is more beneficial financially to the issuer,” said Judd. “From a financial institution’s perspective, different products have different pricing and processing scenarios.”
Explaining and defining the different ways in which credit cards and debit cards are processed will help customers avoid excessive fees and better understand their rights as a consumer, said Judd.
Another way for consumers to protect themselves against fraud is to ensure they actually view and understand their bank statements, said David Floreen, senior vice president of the Massachusetts Bankers Association.
“Even though the bank has other policies in place, the bank relies on that customer to open their bank statement and look it over – less than half of us do that, and it’s the best way for consumers to detect fraud,” said Floreen.
On Floreen’s panel, which discussed the new check processing systems, members of the Federal Reserve Bank of Boston, community activist groups and bankers discussed the proposed Check Truncation Act and how digital imaging of checks is likely to affect the industry.
Floreen said the first wave of check imaging started about a decade ago when banks moved their systems in-house and processed checks without using third parties.
“[Banks] saw that is was a more efficient way of … processing information, capturing data and providing better services to customers,” said Floreen. “What we have seen in the last year or so is a much more rapid reexamination of imaging systems, particularly in the larger banks [that] look at it as providing a better service.”
Floreen said check imaging would play an increasing in the banking industry and would undergo further scrutiny in light of new regulations being put in place, including the USA Patriot Act.
“When law enforcement wants information on someone, banks and financial institutions have to provide it within a very short, hourly timeframe and the only way you can do that is to have your transactions processed in digital imaging,” said Floreen. “We are seeing a lot of banks going to imaging right now … we will continue to see other banks and community banks transform over within the year, but they do have to be cognizant of Massachusetts law that says customers have the right to receive their checks back, if they choose.”
According to Massachusetts state law, banks are required to keep images of checks for at least seven years and consumers have the right to those images at any time at no cost.
Floreen said Massachusetts, “as a major financial services state,” needs to update its focus on consumer education and “keeping people informed on what is going on in the world of technology.”
