Industry Letter

January 2004

To the Institution Addressed:

Re: Best Practices for Issuers of Debit Cards-Reissue

In 2001, the New York State Banking Department (the “Department”) issued a letter providing “best practices” recommendations to debit card issuers, as part of its ongoing effort to promote reasonable and fair business practices by supervised institutions, their subsidiaries and affiliates. Since that time, debit card use has continued to grow, as financial institutions continue to replace their traditional ATM cards with banking cards that include the VISA or MasterCard debit functionality.

While offering the potential for significant convenience, debit card use can be a liability for consumers who do not fully understand their rights and responsibilities. In order to mitigate these concerns, it is critical that debit card issuers provide clear and constant explanations of their policies, regularly itemize charges on monthly statements and keep their fees reasonable.

To further underscore these guidelines, the Department has elected to “reissue” its 2001 letter, together with several supplemental recommendations:

  • Disclose that the customer is entitled to have a basic ATM card

Customarily, debit cards are issued at the time a deposit account is opened, or by a subsequent mailing to "upgrade" an existing ATM card to the debit card. Customers should be notified that they are not required to accept a debit card if they feel that a basic ATM card would better suit their needs. Do not put the burden on the consumer to ask whether the debit card is their only option.

  • Keep fees reasonable

Per transaction fees and monthly service charges should be reasonably related to the cost of providing debit card services.

  • No charge for dishonor by bank

Irrespective of the law, no charge should be imposed on a consumer when his or her debit card purchase is dishonored. This would be comparable to treatment of an unsuccessful withdrawal from an ATM.

  • Debit card "overdraft"

If an account is overdrawn, it is not reasonable for a bank to honor the debit card transaction while at the same time assessing a fee for the "overdraft", without prior notice of the fee to the consumer. Whether or not the customer has an overdraft feature on the underlying checking account, any "overdraft" feature on the debit card should be optional, and the terms thereof should be clearly and conspicuously spelled out in the customer agreement. At the time a deposit account is opened, or by a subsequent mailing offering this feature, customers should be given a clear choice whether to either accept or decline this overdraft feature. Finally, for those accepting an "overdraft" feature, fees should be reasonable.

  • Point of sale fees

Many customers are unaware that issuers may charge Personal Identification (PIN) fees for debit card use at point of sale. When the card is issued and annually thereafter, the bank should provide the customer with clear, plain language information regarding these fees and should itemize point of sale fees in their monthly statements. Each statement should also include a reminder about any terms or conditions that must be met in order to avoid PIN fees, such as by maintaining a higher total balance in the customer’s account or not exceeding a preset number of transactions.

  • Cap liability for unauthorized transactions at $50

A number of issuers are now offering consumers better protection than that required by federal regulations. Regulation E caps liability at $50 only if the consumer notifies the bank within two days of finding out that the card is lost or stolen, but then raises the cap to $500 thereafter, up to a maximum of 60 days. Like those banks that have already elected to do so, all institutions should voluntarily cap consumer liability to $50, irrespective of the time of notification.

  • Educate consumers

Over and above the requirements of Federal Reserve Board Regulation E, at the time that a debit card is issued and annually thereafter, the bank should regularly provide the customer with clear, plain language information regarding his or her debit card use. For example, in addition to providing an annual notice that describes in clear, conspicuous and plain language the consumer’s rights and responsibilities as a debit card holder, the monthly statement should clearly itemize, set forth and explain the various fees and charges incurred during the statement period.

It is in everyone’s interest to ensure that banks offering debit cards follow fair and reasonable business practices, thereby benefiting the consumer and minimizing any potential reputational harm to the institution and the industry.

If you should have any questions regarding the foregoing, we invite your written inquiry and would welcome the opportunity to meet with you to discuss your concerns.

Very truly yours,


Diana L. Taylor
Superintendent of Banks