unless the choice affects the merchant as to costs or obligations. We do not agree that the consumer's right to privacy extends to the nature of his payment mechanism, insofar as the retailer is concerned. The choice of payment method is important to the merchant because of the fees charged, and also because of the risks and obligations of the parties. Federal law provides the consumer with different rights depending upon whether the purchase is on credit, or is by cash, check, or other debit. The current practice of retailers to ask the consumer whether the purchase is by "cash, check, or credit," does not generate protests that merchants are violating the consumer's expectations of confidentiality. By posting signs similar to the present ones for credit cards, a merchant should be permitted to notify the consumer as to whether he accepts debit and/or credit cards, and the consumer would thereby be able to avoid any embarrassment which might be associated with the merchant's declining a payment service of a multipurpose card. Separation of EFT cards by type of payment method will aid disclosure to the parties in advance of the transaction and will thereby enhance protection of the consumer's privacy rather than encroach upon it.

It is, therefore, urged that any legislation enacted in the EFT area include a provision mandating the separation of the debit and credit services.

There are several additional concerns which we recommend be addressed by the subcommittee. The definition of "account" in section 803(2), is so broadly worded that it encompasses consumers' credit accounts with retailers. We suggest that the definition be revised to delete the words "established or" so that it reads "the term 'account' means an account in which deposits are made. *" Further, we recommend that a specific exclusion be added to the definition of "account" to clarify that creditors' 30-day and open end credit accounts do not come within the ambit of this law.

* *

The provision in section 807 requiring semiannual explicit renewal of preauthorized transfers is unnecessary and should be deleted. The consumer will receive a monthly statement advising him of the consequences or his preauthorized transfers; thus, no "reminder" will be necessary. This requirement of explicit renewal will operate to discourage this form of payment mechanism. The inconvenience and cost to the financial institution is not justified by the delivery of any corresponding benefit to the consumer. NRMA opposes section 815, exempting $1,500 in any EFT account from levy, attachment, garnishment, or other process.

As you know, Federal law currently limits the amount that is subject to garnishment to the lesser of 25 percent of a worker's disposable earnings or the amount by which his weekly disposable earnings exceed $69-that is, 30 times the minimum wage, which currently is $2.30 per hour on the Federal level. While the States are free to provide further protections, and some have done so, the Federal law has guaranteed this basic protection since 1969. Thus, whether a worker has agreed to a direct deposit payroll plan or not, his wages cannot be garnished except within the limits provided by law. When the wages are deposited in a checking or savings account, whether this is accomplished electronically or per

sonally by the wage earner, the funds in that bank account should be treated in the same way and the rules concerning access to that account should be the same. The fact that a wage earner has chosen to have the convenience of direct payroll deposit, rather than manually depositing his payroll check, should not be used as justification for creating a new protection for those funds on deposit. Moreover, certain funds, such as social security benefits, already are protected from attachment even though such funds are deposited in a bank account.

If the purpose of this provision is to insure that the existing Federal protection on wage garnishment is not eroded by EFTS, we are in sympathy with that aim. We support section 814 of this bill, which requires voluntary written authorization by the employee for direct deposit of his paycheck. However, we oppose changing the existing law protecting garnishment of wages because we believe that it has afforded debtors with ample protection for over 8 years. There is no reason to presume that Congress intention to protect 75 percent of a worker's wages will be thwarted by attachment of the consumer's EFT account. First, the protection at the employer's level will remain whether the wages are paid electronically or by paper check. Second, when they are deposited in the account, the ordinary rules as to levy and attachment can and should apply. Garnishment and attachment are only permitted after notice and the right to a hearing. Thus, they do not occur by surprise. Any debtor who wishes to prevent his wages from becoming funds on deposit can revoke the authorization which he gave to his employer.

This provision might also serve as an invitation to anyone wishing to protect funds from lawful process to arrange for a series of direct deposits of his wages in accounts which have this EFT feature, thus evading attachment of his accounts.

In sum, we are unaware of any justification for enactment of a new Federal law permitting a consumer to evade otherwise lawful access to funds on deposit. The extensive body of State law on this issue and existing Federal law should not be overridden without a demonstration of compelling need. We therefore recommend that this provision be deleted in its entirety.

Another provision of this bill which should be reconsidered is the requirement in section 806(a)(4) that the financial institution provide a description of the goods or services at the time of the transfer or not later than 5 days after the transfer. This requirement, which exceeds the related provision found in the Truth in Lending Act, would be virtually impossible to meet in the case of multiple item purchases at central checkout counters. There is no need to describe every item in a shopping cart when the date, store, and total amount of the purchase will provide the consumer ample ability to relate the transaction to the cash register or similar receipt which accompanies such purchases.

These comments should not be construed as a fundamental objection to this subcommittee's commendable effort to anticipate consumers' needs in the EFT area and attempt to meet those needs before problems arise. We believe that after careful study of the completed work of the National Commission of EFT, and due con

sideration to accommodating the concerns expressed here, a satisfactory legislative measure can be enacted in the area of EFT. I would be happy to attempt to answer any questions you may have.

Senator RIEGLE. Well, thank you very much for your testimony. I appreciate our effort to summarize and I would like any other specific recommendations that you have to make if they have not been included in your statement.

Let's go to our next witness, Ms. Brown.

Testimony of

Karen H. Brown, Director of Consumer Affairs
Food Marketing Institute
Before the

Subcommittee on Consumer Affairs
of the Senate Banking Committee
October 5, 1977

Subject: S.2065

Mr. Chairman:

My name is Karen Brown, Director of Consumer Affairs for

the Food Marketing Institute. Our membership includes approximately 850 food wholesalers and retailers ranging from one store operators to corporate chains.

We are pleased to return to give our views on the impact of EFT systems on our customers and, more specifically, on S.2065, which would amend the Consumer Credit Protection Act to provide consumer rights and remedies in electronic fund transfers systems. Starting today and continuing through Friday, our industry EFT Committee is meeting in Dallas at an FMI sponsored conference to discuss the results of a major research project on this very subject. Only this committee can speak to the details of the bill. committee is reviewing the provisions of S. 2065 and we will submit a detailed report for the record. At this time, however, I would like to comment on the spirit of your bill from my view point as FMI's Director of Consumer Affairs.

The

One issue of balance which must be faced by all of us involved with EFT, is the need to legislate basic protections versus the desirability of allowing freedom of experimentation in the market

-2

place. It is clear to food retailers that at least some of
the original consumer concerns have been addressed by EFT
systems designers as they have evolved their concepts in the
marketplace. Since FMI members are much closer to this
evolutionary process than is our staff, it is important that
our industry committee reserve the right to comment on specific
legislative proposals and the timing of those proposals. We
wish to protect the consumer, but we do not wish to legislate
prematurely.

Food retailer and wholesaler interest in the impact of this new technology on our food store customers is high because nearly 80 percent of all domestic EFT installations are currently accounted for by placements in supermarkets. Several years ago it became clear to our industry leaders that the development of EFT systems could have a significant impact on both our customers and our stores. Since that time, we have devoted considerable resources to studying the impact of EFT and have worked with the National Commission on EFT and this Committee by providing testimony and comment. Most recently, we have just completed what we believe to be the only major research involving consumers who actually use or have had the opportunity to use EFT services. objective was to develop an understanding of who uses these services how they are employed, and what the major consumer concerns are.

Although this research is system specific and does address design considerations, it may be considered primarily basic consumer research. That is, it is designed to uncover basic consumer attitudes, needs, and concerns relative to EFT as an overall concept.

The

-3

By way of background, we see exciting potential benefits which may ultimately flow from this new development; however, we support the position that EFT can benefit consumers in a number of ways only if certain crucial features and safeguards are built into the system.

There are significant differences among retailer expectations of, and experiences with EFT. Some operators are already committed to offering EFT services while others are quite skeptical about the ultimate value of this new development. The majority of retailers, however, are still experimenting to determine whether or not EFT make sense in their particular situation.

Before I comment on the specific sections of S.2065, I would like to suggest an additional area of concern not yet adequately addressed by the EFT Commission and we encourage the committee to focus some of their attention to this area.

Our membership felt that from its inception the National Commission on EFT should have dealt directly with the question of whether EFT systems are going to be economically viable; that is, will they produce more benefits than costs. It is our feeling that this is the central question that must be answered in serving the public interest. The Commission's posture seems to accept EFT as inevitable and to suggest ways in which society can live with this technology. While it certainly is time to begin development of mechanisms for living with EFT, it is also important to be sure that the concept of EFT is cost effective.