-3

em

project in co-sponsorship with the Bank Administration Institute of Chicago. We believe this to be the only major research aimed at measuring consumer attitudes and requirements among food shoppers who actually use, or have had the opportunity to use E.F..T. services. The objective was to develop an understanding of who uses these services, how they are ployed, 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. A complete copy will be mailed to your staff as soon as our printing process is complete. The findings show that:

1. Users of these new E.F.T. systems already in place are generally satisfied. I stress users because the majority of our customers still choose traditional payment systems even where supermarket E.F.T. is offered.

2. The most frequently cited reason for not using this service when it is available is failure to perceive a need. That is, most of our customers now sense no great discomfort with current payment systems.

3. The users patronize supermarket E.F.T. primarily in reaction to problems encountered in their financial institution rather than because of problems encountered in the supermarket. In particular, those customers who find they cannot conveniently reach their financial institutions during regular banking hours find supermarket E.F.T. very convenient.

-4

In short, many of our customers like these new services. However, many perceive no need for them and, as a result, food retailers are interested in E.F.T. as an addition to current alternatives rather than as a mandatory replacement service.

We see exciting potential benefits which may ultimately flow from E.F.T.; however, we support the position that E.F.T. can benefit consumers in a number of ways only if certain crucial safeguards are built into the system.

Consideration of these safeguards brings us to the specifics of S. 2065. We will comment by section.

Section 803 addresses Definitions and provides coverage for, "...other banking transactions performed in whole or substantial part electronically through remote terminals." It is our fear that this language is so broad as to include almost all forms of existing payment systems. Current systems seem to function adequately from our customers point of view and we would not like to see them inadvertantly altered.

Section 806 addresses Documentation of Transfers and in so doing seems to create an overly burdensome paperwork requirement. Of course, documentation is essential in some form. However, a balance must be struck between, on one hand, providing enough detail to allow the customer to reconstruct a transaction, and on the other hand, so burdening the system with paperwork that the entire mechanism collapses. Since our customers already receive a register receipt at time of pur

-5

chase, a simple monthly statement from the financial institution showing the merchant name, store location, transaction date, and total amount should be sufficient. Some retailers may wish to include, for their own records, an additional signed acknowledgment or receipt from the customer.

Section 806(d) addresses Presumptive Proof of a transaction. We suggest that the last sentence in this section be struck. A food retailer as a third party could not obtain sufficient information so as to assume the burden of proof

in this circumstance.

Section 808 addresses Reversal of Transfers. Reversal,

or stop payment, in some form would be viewed favorably by our customers. This is an option which would help our customers to maintain a feeling of control over their financial transactions. However, it must, at the same time, be drafted so as to prevent arbitrary and capricious use. A minimum dollar limit, maximum time limit, and charge sufficient to cover the marginal cost of such a reversal would be needed. Your committee might consider adding to your provision that reversal be made "...within three business days...", the State of Wisconsin provision that such a reversal may be made for purchases over $50.00. Permissive language allowing a reasonable fee consistent with the cost of reversal should also be added.

Section 809 properly addresses Error Resolution. This function must rest with the financial institution. Although supermarket personnel may provide the initial customer transaction interface, only the institution ultimately holding the

99-379 O-78-20

-6

account of the customer can provide the detail necessary to implement an effective error resolution process.

Of course,

the customer must bear responsibility for providing the necessary information to initiate an audit trail.

Section 810 establishes a $25.00 limit for Unauthorized Transfers. Financial liability in such a circumstance should be subject to reasonable limits. We would suggest that since for many of our customers the $50.00 maximum liability specified in the Fair Credit Bill (15 U.S. 1643) is already familiar, this would be a more workable alternative.

We would urge in further consideration of these provisions, that legislation be restricted to basic consumer safeguards only, and that the details of exactly how to implement those safeguards be left to the marketplace whenever possible.

Finally, I must tell you that food retailers still have concern about the long-run economic viability of these systems. This long-run viability is of particular importance to food retailers because of the possibility that financial institutions may terminate or radically alter an E.F.T. service if it proves unprofitable to them. Some errors must be expected and tolerated during pilot tests and experiments, but when such problems affect a large number of stores and customers, our members are understandably concerned. A recent decision by Glendale Savings to terminate their E.F.T. services in twenty supermarkets in Southern California is evidence that this can occur. Certainly, no one questions the right of this financial institution to terminate an unprofitable activity; but, such an action adversely affects customer convenience. With this specter in the background, it is easy to see why food retailers remain optimistic, but cautious.

Senator RIEGLE. Thank you, Ms. Brown.

I might just comment before calling on the next witness, that with 80 percent of the EFT terminals in supermarkets, I think it's very interesting that you support reversibility when our first witness, also representing the retail industry, feels very strongly to the contrary. Maybe we can can thrash that out a little bit later. Mr. Schober, do you want to go next?

STATEMENT OF MILTON W. SCHOBER REPRESENTING THE AMERICAN RETAIL

FEDERATION

Mr. Chairman, and distinguished members of the Consumer Affairs Subcommittee, I am Milton W. Schober, and I am appearing today on behalf of the American Retail Federation (ARF) in my capacity as special credit counsel for the Federation. Membership in ARF is composed primarily of state and national trade associations which, through their members, represent over one million retail establishments. While the main impact of S. 2065 would be on financial institutions, several provisions would affect the retail industry. Accordingly, my statement will be limited to those provisions.

As a threshold issue, the retail industry is very much concerned with the definition of "financial institution" in § 803(6). That subsection defines "financial institution" to mean, among other things, any other person who, directly or indirectly, holds an account belonging to a consumer." While the use of the words "holds" and "belonging" would seem to imply an asset or deposit-not a credit— account, such an interpretation should be made explicit. This is particularly necessary in view of the definition of the term "account" which includes "** an account established * * for personal, family, or household purposes." Thus, unless these two definitions are clarified, a regular retail revolving credit account could be classified as an "account" and the retailer as a "financial institution," subject to all of the various notices, disclosures, and other restrictions that exceed the obvious scope of this proposed legislation.

*

*

The remainder of the retail industry's concerns with S. 2065 relate to particular provisions which will, or certainly could, impact adversely on the industry.

Section 806(a) requires the financial institution to provide a consumer with written documentation of each EFT transaction either at the time of the transfer or within five days thereafter. Because of the five-day limitation in providing such written documentation, the retail industry is concerned that financial institutions will attempt to force the responsibility of providing such written documentation on the retailer in all cases. While it is true that retailers now generally provide receipts showing the nature of transactions, the documentation requirements imposed by § 806(a) go beyond the types of information now generally provided. Specifically, §806(a)(4) requires a "brief description of any goods or services which are the subject of the transfer." This type of requirement represents a near-impossible compliance burden for merchants with central check-out stations, where the consumer takes his or her shopping basket around a large store and picks out merchandise from 15 to 20 departments. Thus, to the extent that merchants have attempted to cut costs by centralizing their check-out cashiers, with the concurrent economic benefit and convenience to the consumer, this proposed section would effectively eliminate this type of merchandising. The parallel provisions in Federal Reserve Regulation Z for identification of three-party credit card transactions on periodic statements should be used as a guide in setting point of sale disclosure requirements for retailers. The imposition of the present requirements of § 806(a)(4) may have the effect of simply precluding the use of EFT by certain retailers. To the extent that this disclosure requirement impinges on a merchant's freedom of economic choice, the retail industry must oppose it.

Section § 806(d) provides that the documentation given the consumer at the point of sale is "presumptive proof" of the fact that such transfer was made. This is in direct conflict with the position of the National Commission on Electronic Fund Transfers which has recently concluded that the statement only, rather than the point of sale documentation, should be admissible as prima facie proof of payment. Thus, in any dispute regarding payment, documentation from the point of sale transaction would create a presumption of payment which must be overcome by the retailer, notwithstanding the fact that the customer's account may not have been debited for some reason or the transaction may have been reversed. The retail industry feels that only the statement-not the point of sale documentation-should serve as a basis for proof of payment. Additionally, we prefer the proposal in the