Pushy Debit Card Issuers Ignite N.Y. City Council Ire
Lee, W. A., American Banker
Two members of the New York City Council have asked state banking regulators to investigate banks' practices of mailing debit cards to people who did not ask for them, and to set guidelines about how banks should offer debit cards to consumers.
The council members say automated teller machine cards that double as debit cards expose consumers to a higher risk of theft than ATM cards that do not work at the point of sale. Most consumers do not know the difference, the council members say, and the banks have not explained it clearly to their customers.
While the council is powerless to impose its will on the state-chartered banks, the superintendent could issue new regulations. The council's lack of direct jurisdiction has not stopped it from proposing other ways to tweak local banks: Council Speaker Peter F. Vallone has spent years pushing a bill to ban automated teller machine surcharges.
The debit card controversy started last fall, when Citibank began mailing MasterCard-branded debit cards to about a million customers, asking people to replace their ATM-only cards. The mailing instructed people to activate the new cards within 30 days, at which time their current cards would expire.
In a Feb. 20 letter to State Superintendent of Banks Elizabeth McCaul, Council Members Stephen DiBrienza of Brooklyn and Margarita Lopez of Manhattan argued that the Citigroup Inc. subsidiary effectively forced its customers to take a riskier card.
"Consumers were given no clear choice in determining whether or not they were interested in making this switch," the letter said. The council members argued that Citibank, as well as J.P. Morgan Chase & Co. and other banks serving New Yorkers, did not clearly explain the function of a debit card in their mailings, and that the MasterCard logos on the cards might lead people to believe they were credit cards.
The council members said they did not contest banks' rights to offer debit cards, but did want the state to create and enforce some guidelines. They said Citibank should have detailed in writing how its debit card differs from its ATM card, and from a credit card, both in the direct transfer of funds and any differences in fraud liability, and that customers should have been told they could choose not to have a debit card. Nowhere, they said, did Citibank's literature inform cardholders that they could keep their old ATM cards.
Wayne Malone, the vice president of distribution management who runs Citibank's debit and ATM card program, said he was unaware of any controversy surrounding the change, and said that "mass issuance" was simply the most efficient way to meet broad customer demand. It was not, he said, a way to slip unsuspecting customers a debit card. Moreover, he said, Citi had informed its customers through mailings about the change in cards.
Mr. Malone said there will always be consumers who cannot tell the difference. "Some people don't understand debit," he said. "They think it's a credit card, even though we've provided a lot of information, including pre-mailers, post-mailers, and information when the card came. …