This will be a greater incentive for a customer to act promptly and possibly prevent other unauthorized uses. The Committee may wish to consider the requirement that a customer report an unauthorized use appearing on his statement within a specified time period such as 60 days or be subject to a longer process of error resolution, Section 811 - Liability of financial institution. We concur with the main thrust of this section. However, should an ATM fail to dispense cash which the customer would normally use to pay a debt, the financial institution should not be liable for the customer's failure to attempt another machine or another method of payment. Section 815 Garnishment. We concur with this provision and would point out that its provisions should not prohibit a consumer from using the funds in an account as security in order to obtain better terms or conditions on a loan. These comments are intended to maximize the rights of the consumer in an EFT environment while minimizing the opportunity for such complications as those which developed in the Truth in Lending Act. Such complications in an EFT environment could ultimately work to the consumer's disadvantage. I am supporting a cost-benefits approach designed to best protect the consumer in this new banking technology. hope these comments are of assistance. Sincerely yours LAWRENCE CONNELL, JR. 4. ANSWERS OF JAMES L. BROWN TO QUESTIONS OF SENATOR RIEGLE Question 1. What is your opinion on the question of unsolicited debit cards? Should they be permitted by federal legislation? Answer. The issue of allowing unsolicited distribution of debit cards involves a very fundamental policy question facing any legislator or regulator considering EFT. The very existence of legislative attempts to regulate EFT, such as S. 2065, or administrative attempts to regulate same, such as Wisconsin Administrative Code, Chapters S and L 26 or BKG 14, presupposes the existence of substantial potential dangers to consumers participating in advanced EFT systems. The potential threat to the financial well-being of such consumers is so widely recognized as to be beyond controversy as regards its existence. Given this potential danger, then, a prohibition on the unsolicited distribution of access devices is both theoretically and practically consistent with any meaningful attempt to protect consumers participating in such systems. Bluntly put, it makes little sense to acknowledge that system participation is fraught with potential danger and, nonetheless, permit participation by consumers on any other basis other than an affirmative election to do so. There can be no doubt that financial institutions will be anxious to widely disseminate such access devices in an effort to achieve substantial volumes of usage to attempt to help pay the enormous front end costs of implementing such systems. Nevertheless, the financial well-being of institutions purveying such systems must be secondary to the goal of protecting individual consumer participants in those systems, as be recognized by virtually every consumer addressing this topic, as well as The National Commission on EFT. Question 2. Do you believe EFT has been developed to benefit the consumer or primarily to benefit financial institutions? Answer. EFT has, in my opinion, been designed and promoted by the financial community. There can be no doubt that properly designed and appropriately regulated, EFT offers substantial potential benefits to consumers. Nonetheless, it seems clear that EFT has evolved in response to various factors impinging upon financial institutions and merchants, rather than in response to any demand from consumers for an improved payments system. While some EFT services, particularly priorly authorized payments and ATM transactions, have been undeniably popular with consumers, other services, notably point of sale systems, have been less than enthusiastically embraced. Í find it incongruous to contend that systems which have been, in many instances, marginal in their acceptance can seriously be viewed as having been designed primarily as a benefit to the audience which has not enthusiastically accepted same. The undeniable impacts of EFT, such as paper volume reduction, increased velocity of money, and the like, all of which are intimately associated with EFT, are primarily affecting financial institutions and only indirectly affecting consumers. Question 3. If you were to buy a new coat and had a choice of payment methods, would you prefer to pay by cash, check, credit card, or debit card? Answer. The choice of mode of payment for a current purchase would be dependent on several factors. First, it would depend on the availability of cash, i.e., on how much cash I have currently in my possession. Second, it would depend on the acceptability by the merchant of my personal check. Third, it would depend on the current balance status of my checking account, in that I might well prefer to use a check over a debit card if my current balance is insufficient, but I expect to make a deposit to my checking account shortly. Fourth, depending on my familiarity with the quality of the merchant's goods and with its reputation for fair dealing, I might well prefer to write a check as against using a debit card to protect my right to stop payment on such check should the goods prove faulty. Fifth, as between paying cash or paying by debit card, my reluctance to obtain or carry substantial amounts of cash for reasons of personal security might well mitigate in favor of the use of the debit device. In short, just as there is no distinct manner of which I am aware whereby a cash transaction can be distinguished from a check transaction for purposes of designing a reversibility provision, there are many factors which would enter into my decision to make a purchase by cash, check, or debit card. Question 4. What has the experience been in Wisconsin with regard to state law permitting consumers to reverse certain debit transfers? Answer. The Wisconsin Provision on Reversibility, Wisconsin Administrative Code, Chapter S and L 26.09, permits a consumer to charge back any transfer of $50 or more made to a third party for the purchase of goods or services within three business days of such transfer. Such rule has been in effect since December 1, 1976. According to information personally supplied to me, the three largest banks in the State of Wisconsin, all of whom were founding members of the TYME Corporation, have not experienced a single reversibility demand under the aforementioned rule since its effective date. Given the still embryonic state of the TYME Corporation's point of sale system, such a result is not at all surprising. In the first place, few, if any, reversals would be expected by analogy to the relative infrequency of stop payment orders in the more traditional check context. Secondly, the relatively few point of sale terminals presently in place and operational are unanimously located in extremely high-quality, reputable merchant locations. These few stores have traditionally charged higher prices for good-quality merchandise and have provided high-quality customer service correspondingly. In other words, the stores where the system is presently operational are in all probability stores that did not experience stop payment orders under Section 404.403, Wisconsin Statutes, as regards checks since their natural manner of doing business would be to fairly, fully, and expeditiously investigate and resolve consumer inquiries and complaints. Senator HARRISON SCHMITT, NATIONAL CONSUMER LAW CENTER INC., Committee on Banking, Housing, and Urban Affairs, DEAR SENATOR SCHMITT: This is to reply to your questions of October 14, 1977 as forwarded by Philip A. Sampson of your Staff. I hope these further elaborate my remarks given to the Subcommittee on Consumer Affairs, when I testified about electronic funds transfer in support of consumer protection. Regarding "substantial" changes in order to comply with S. 2065, I cannot be specific, as virtually all the operating information necessary to evaluate such an inquiry would be proprietary. In my view the Bill does not specify any standards, leaving operators and other EFT-providers with complete flexibility in accomplishing those protection features. In my work with computers, I've found surprising inertia associated with "business as usual" once a standing set of institutional procedures (such as forms, and existing software) is in place. My own marketing experience suggests that healthy commercial enterprises can rapidly respond to necessary, more efficient, and better methods of delivering service. I would anticipate a similar response should the requirements for marketing EFT consumers be altered by federal legislation. Peat, Marwick and Mitchell, in one of the studies done by and for the National Commission on EFT, suggests that EFT costs are highly volatile, as well as being incompletely understood. On this basis alone I would find it extremely problematic to take any specific position on the costs of EFT systems. Though the industry has been pointing to special economies of scale in EFTS for a decade, yet the incremental costs of EFT are still difficult to pin-point, and even more troublesome to control. I think of an implemented EFT system as a nearly-living organism, the interrelationship of whose parts is only poorly understood. I would expect the key changes in existing systems created by S. 2065 would probably involve the provision of receipts (called by the industry "transaction advices"), and probably the delivery of proper explanations. Stop-payments should be easy, being but one form of reversal, which is already implemented for commercial users. The primary source of costs would be to reprogram and upgrade existing machinery, which at present is a small part of what EFT might someday be. All new equipment could be properly configured to provide the necessary documents and user-information; though it is not being built this way today. The disclosure area in particular, is open to substantial innovation, which the legislation should promote rather than stifle (since EFT providers would be encouraged to find software or documentary mechanisms that combine the necessary information with other existing notices to avoid the costs of an additional special step). An example would be coordinating pre-authorized payment posting and the statement mailing date, so that the statement itself becomes the consumer's receipt for pre-authorized payment. Similarly telephone payments could be taken at the customers convenience but debited only just before the statements were mailed, again in order to conform to the notice procedure in S. 2065. One necessarily expects there are some imaginable future technologies that would be stunted by legislative involvement; but that is doubtless always the case. Certainly some features of nuclear technology might have proceeded more rapidly, but that public safety requirements sighted nuclear research experiments and storage of waste in remote places. I think we have also restricted the advance of recombinant DNA search by the imposition of safety standards, but again I think the public purpose outweighs the slowing of the technology. [See the attached article discussing existing violations of those agreed restraints.] The rather extensive damage created by unregulated credit card introductions some years ago was halted largely by the legislation after the damage had been done. Today we have a chance to constrain the potential injuries in the introduction of EFT systems before they become fully integrated. I take great issue with your view that consumers are presently "choosing" to use EFT systems without receipt or anti-liability protections. I think the research done by the Consumer Affairs Office in New York City (submitted to the Subcommittee) reveals the general reluctance of consumers to use EFT, and also shows the substantial marketing pressure applied in its implementation. Much of this is being supported by inadequate disclosures of the price consumers pay for the "convenience" of EFT systems: in check authorization, for example, a "hold" is put on a checking account for each authorized check without the consumer being told, without any confirmation that the authorized check was actually cashed, and quite probably without legal justification in advance of the "presentment" of the instrument itself. And as you are doubtless aware there are substantial groups of private and federal employees and social security pensioners who are receiving checks by direct deposit without really being provided a free choice in the matter. It is also extremely difficult to know whether or not there might be problems with the lack of receipts. Because of the terrific sensitivity of EFT to adverse publicity, and because most implementation-marketing consumer research performed by or for the industry is proprietary, the level of difficulty remains largely "invisible". Generally when consumers were asked whether they would prefer to have EFT receipts, they agree. It is important to realize there are so few places where pay-byphone or pre-authorized transfers provide receipts and probably none permit the choice of receipts or not. I would estimate that there is virtually no information on that choice issue because the choice doesn't exist. Again I also have the same problem with consumers being permitted the right to "choose" whether they have an EFT device with or without an ability to reverse payment. But at present there is no such choice provided. So far as I know most Automated Clearing House systems actually provide for reversability, as do point-ofsale systems with respects to merchant account corrections; but I've never seen these features routinely disclosed for consumer use. Most retail bankers are incompletely aware of those rules too. Research done by Mrs. Zimmer points out the wide spread existence of error-resolution procedures, but the shameful lack of disclosure to the consumer users. It is my judgment from this that there's no realistic opportunity to reverse, so that in effect consumers are being presented with receiptless EFT not as a "choice" but in terms of "take it or leave it". It's my view that virtually the same kind of one sided bargaining presently occurs with respect to liability limits (except in Wisconsin where there is a regulated upper value to protect consumers' liability). As seems clear from industry practice so far there appears from the marketplace to be no realistic alternative approach to limiting liability of conusmers. Because substantial liability abuses continue to appear, I find the competitive approach lacking, insofar as it has not today resulted in a workable alternative or in meaningful disclosure of their liability to the consumer users. Two closing general remarks also respond to your questions. First, the pervasive absence of any contemporary documentation analogous to the check instrument or the credit card slip leaves the consumer user with no real data, outside of the information totally within the control of the provider, the party with a contrary interest. When this situation evolves into an integrated, multi-institutional network proofs of transaction, and auditing are going to be extremely difficult and slow unless the system itself assists. Mandatory audit records would have been unreasonable with the old-fashioned, manual systems, but with the speed, accuracy, and mechanical efficiency of computers peripherals there is no reason that the consumer (as well as the institution) cannot benefit from those very tasks which the automated devices do so well. If the Automatic Teller Machine gives the consumer a paper receipt, it need not file the document for itself, but merely record the information electronically (which it almost certainly does anyway to communicate the transaction). Secondly, we need to be aware of the great variety of skills, strengths, and weaknesses we as a nation bring to our individual transactions with machines, and machinery systems. Already today there is a moderate "service industry" whose primary job is assisting consumers who are unable to understand the transactions and obligations in which they've unwittingly become entangled. These counselors, complaint bureaus, and other entitites (which includes a large number of lawyers) are only able to determine "what happened" using documentary evidence. In an allelectronic environment without individual documentation, this vital third-party counseling and accommodation becomes virtually impossible. Over the long run it can lead to acute frustration, alienation from the mainstream of society, and profound depersonalization of even more of our routine daily attractions with each other. Consumer protection in EFTS essentially means conforming the machinery to human nature, rather than letting the mechanisms define how we must behave. Particularly for the disadvantaged, the elderly, and the unfamiliar such a wholly new payment system must be made humane or be prohibited. Yours very sincerely, MARK LEYMASTER. [From the Science News of the Week] INSULIN GENE RESEARCHERS ADMIT BREACH OF RULES Through error or arrogance, researchers working on the insulin gene broke the National Institutes of Health guidelines on recombinant DNA research last winter. Scientists at the University of California in San Francisco prematurely used a specific ring of DNA (the plasmid pBR322) to carry rat genes into bacteria. That plasmid was not completely certified for use until July 7. There is no issue of a public health problem. The same experiment would be acceptable if it were done today. Nor did the work give the researchers an edge on their competitors, since, according to a report in the Sept. 30 SCIENCE, the halfcompleted experiment was destroyed early in March when the scientists say they first learned that the plasmid had not been certified. The transfer of the rat insulin gene into bacteria, which was reported in May (SN: 5/28/77, p. 340) and which received worldwide acclaim, was done with a different plasmid, pMB9. That experiment did follow the NIH guidelines, the researchers emphasize. "The cloning and all the information in that [June 17] SCIENCE article were as stated. This incident has no relationship to that," William J. Rutter, one of the project leaders, said in a telephone interview. The researchers are pleading confusion over the early NIH rules. Plasmid pBR322 had been tentatively approved by the NIH recombinant DNA committee on Jan. 15, but was not yet certified by the director of NIH. "If you read the guidelines carefully there is no mention of a distinction between approval and certification," Rutter says. "That was an unfortunate period of time when confusion reigned." However Herbert Boyer, the UCSF researcher who provided the plasmid, says that one individual from the insulin team did call repeatedly to ask the status of the certification procedures. "I was clear on it [the difference between approval and certification]. I just felt everybody knew and apparently that wasn't the case," Boyer says. According to the minutes of a meeting of the UCSF biosafety committee, the researchers said they had been verbally informed that the certification was imminent and that they should proceed with their experiments. Neither NIH nor the local biosafety committee, which is charged with enforcing the rules, was immediately informed of the experiments. Rutter explains that approval for the plasmid pBR322 was considered imminent. He also points out that there was a tense political situation, with recombinant DNA legislation coming before Congress and with much public attention being given to rules and regulations. Eventually the researchers did call their breach of the rule to the local committee's attention. Researchers in other laboratories and reporters suspected violations of the guidelines last May when the group announced in a press conference their surprisingly rapid success in transferring the gene using plasmid pMB9. That announcement occurred only three weeks after certification of the plasmid-barely enough time in which to do the work. Furthermore, an article in June SMITHSONIAN by Janet L. Hopson, formerly of SCIENCE NEWS, described a careless attitude toward the guidelines among many young researchers working on recombinant DNA in the UCSF laboratories. Hopson quotes a researcher advising a foreign visiting scientist: “No one has to know if you go ahead a little early. You can repeat the experiments later and publish them from your own country." The California researchers countered the suspicions by insisting that the experiment followed the guidelines completely and just went very well. "The major problem is getting the DNA. We had it all ready to go," Rutter and Howard M. Goodman told SCIENCE NEWs at that time. Because they had done the experiment from scratch with a certified vector, they did not mention their earlier experiment. Rutter now says, "We decided to not bring that up. True there had been confusion and we had discovered it. But we handled it appropriately; therefore it was not a thing we needed to make a great deal of publicity out of." |