At the Independent Community Bankers of America National Convention, San Diego, California

March 23, 2011

Community Banking in a Period of Recovery and Change

It’s a pleasure to have the opportunity to speak once again before the Independent Community Bankers of America (ICBA). This is the sixth consecutive year that I’ve met with you at this event, and the themes of my remarks over the years tell a story not only about the financial and economic upheaval that we have all experienced, but also about some of the very difficult issues that continue to confront both bankers and policymakers today. Back in 2006, less than two months after I started as Chairman, I spoke to you about the strong performance of community banks as well as about some important longer-term challenges. In subsequent years, my remarks touched on the need to strengthen regulation and supervision of Fannie Mae and Freddie Mac, approaches to reducing preventable mortgage foreclosures, community banking and the financial crisis, and then last year, the need to address the problem of financial institutions that are “too big to fail.” My themes today are the vital role that community banks need to play in the economic recovery, the value that the Federal Reserve places on insights from community banks, and the evolving regulatory environment.

Community Banks and the Economic Recovery
To me, the title of the 2009 ICBA annual report, Empowering Main Street, is a concise and accurate description of the critical role that community banks play in the U.S. economy. Community bankers live and work where they do business, and their institutions have deep roots, sometimes established over several generations. They know their customers and the local economy. Relationship banking is therefore at the core of community banking. The largest banks typically rely heavily on statistical models to assess borrowers’ capital, collateral, and capacity to repay, and those approaches can add value, but banks whose headquarters and key decisionmakers are hundreds or thousands of miles away inevitably lack the in-depth local knowledge that community banks use to assess character and conditions when making credit decisions. This advantage for community banks is fundamental to their effectiveness and cannot be matched by models or algorithms, no matter how sophisticated. The IBM computer program Watson may play a mean game of Jeopardy, but I would not trust it to judge the creditworthiness of a fledgling local business or to build longstanding personal relationships with customers and borrowers.

Given the important role that community banks play in their local economies, we at the Federal Reserve are keenly interested in their health and their collective future. Local communities, ranging from small towns to urban neighborhoods, are the foundation of the U.S. economy and communities need community banks to help them grow and prosper. As I’m sure you are all too aware, the financial crisis and its aftermath have hit some community banks especially hard, and those institutions will continue to need time to repair their balance sheets. Although we are not yet where we would like to be, the good news is that many community banks are recovering and reporting stronger performance.

Indeed, despite some of the worst economic conditions since the Great Depression and their own strained balance sheets, community banks have already been doing their part to meet the credit needs of their customers, notably including small business customers. We have been spending a lot of time at the Federal Reserve trying to understand and promote lending to small businesses, and one of the interesting things we have found is that while small business lending contracted overall from mid-2008 through 2010, this contraction was not uniform. In fact, a majority of the smallest banks (in this case, those with assets of $250 million or less) actually increased their small business lending during this period. And while banks with assets between $250 million and $1 billion showed a slight decline in small business lending over this period, the contraction was not nearly as sharp as it was for the largest banks. This hard evidence underscores the important benefits of relationship banking, particularly in periods of unusual economic and financial stress.

Community Banks and the Federal Reserve
You may recall that in my remarks to this group last year, I noted that the decentralized structure of the Federal Reserve System, with 12 Reserve Banks and 24 branches located in cities across the country, was designed to ensure that local insights and information would be incorporated in the deliberations of both the Board and the Federal Open Market Committee. During the debates leading up to the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, we emphasized that our supervisory responsibility for state-chartered banks that are members of the Federal Reserve System and bank holding companies of all sizes not only provides valuable economic information at the grass-roots level that would be very difficult to replace, it also gives us a fuller picture of the nation’s financial system. At the same time, the range of expertise that the Federal Reserve develops in making monetary policy and in its engagement with the financial system allows us to bring unique insights and value-added to our supervisory activities. Fortunately, the Congress decided to preserve the Federal Reserve’s existing supervisory authority over smaller as well as larger banking organizations. It also broadened the Federal Reserve’s connections to Main Street by adding hundreds of thrift holding companies to the institutions we supervise. We are delighted that, through our supervision, our gathering of economic intelligence, and the activities of our community affairs departments around the country, we will be able to remain fully engaged with grass-roots America.

The Federal Reserve has undertaken several recent initiatives to enhance our interactions with community banks and ensure that we fully take their perspectives and unique characteristics into account in our policymaking. First, for many years, the Board has had a committee of Governors that provides oversight on bank supervisory and regulatory matters. Although many of this committee’s efforts in the wake of the financial crisis have understandably been focused on the largest and most complex banking organizations, the Board believes that it is important to sharpen our focus on smaller banking organizations as well. As a result, we recently established a special supervision subcommittee that focuses on community banks and smaller regional institutions. This subcommittee is chaired by a former longtime community banker, Governor Betsy Duke, and also includes a former state banking commissioner, Governor Sarah Bloom Raskin.

The subcommittee provides leadership and oversight on a variety of matters related specifically to our supervision of community and smaller regional banks.¹ In particular, the subcommittee is reviewing new policy proposals through the lens of the effect those proposals could have on smaller institutions, both in terms of safety and soundness and potential regulatory burden. Among other things, the subcommittee also monitors the Federal Reserve’s working relationship with state banking supervisors, which is particularly important because we share with them supervisory responsibility for state member banks.

We have also undertaken an initiative to solicit feedback from community banks on a more regular basis. In October, the Board announced that it would form a Community Depository Institutions Advisory Council to provide insight and information on the economy, lending conditions, and other issues of interest to community banks.² To make this council as representative as possible, each of the 12 Reserve Banks now has its own local advisory council comprising representatives from banks, thrift institutions, and credit unions; one member from each local council serves on the national council that will meet with the Board twice a year in Washington. Local meetings have already begun, and the first meeting of the national council with the Board will take place soon. Personally, I am looking forward to hearing more from community bankers about issues ranging from their local economies to regulatory reform.

Community Banks and Regulatory Reform
As you know, a key challenge for community banks in the years ahead will be to adapt to the changing regulatory environment, particularly the regulatory reforms contained in the Dodd-Frank Act, as well as the changes that will be associated with the Basel III reforms. We are certainly aware of and appreciate the concerns that community banks have about these regulatory changes, and, as I have just described, we have stepped up our efforts to understand those concerns and to respond to them as appropriate. I think it is worth emphasizing that the changes we will be seeing in the financial regulatory architecture are principally directed at our largest and most complex financial firms, including nonbanks. Consequently, one benefit of the reforms should be the creation of a more level playing field for financial institutions of all sizes.

Focusing reform on our largest, most complex financial firms makes sense. The recent financial crisis highlighted the fact that some financial firms had grown so large, leveraged, and interconnected that their failure could pose a threat to overall financial stability. The sudden collapses of major financial firms were among the most destabilizing events of the crisis. The crisis also demonstrated the inadequacy of the existing framework for supervising, regulating, and otherwise constraining the risks of major financial firms as well as of the toolkit the government had at the time to manage their failure.

As I discussed with you at last year’s meeting, a major thrust of the Dodd-Frank Act is addressing the too-big-to-fail problem and mitigating the threat to financial stability posed by systemically important financial firms. The too-big-to-fail problem is a pernicious one that has a number of substantial harmful effects. Critically, it reduces the incentives of shareholders, creditors, and counterparties of such firms to discipline excessive risk-taking. And it produces competitive distortions by enabling firms with large systemic footprints to fund themselves more cheaply than other firms because of the implicit subsidy of too-big-to-fail status. This competitive distortion is not only unfair to smaller firms and damaging to competition today, but it also spurs further growth by the largest firms and more consolidation and concentration in the financial industry. A financial system dominated by too-big-to-fail firms cannot be a healthy financial system.

The act addresses the too-big-to-fail problem with a multi-pronged approach. Under it, we are developing more-stringent prudential standards for banking firms with assets greater than $50 billion and all nonbank financial firms designated as systemically important by the Financial Stability Oversight Council. These more-stringent standards will include stronger capital and leverage requirements, liquidity requirements, and single-counterparty credit limits, as well as requirements to periodically produce resolution plans and conduct stress tests. Our goal is to produce a well-integrated set of rules that meaningfully reduces the probability of failure of our largest, most complex financial firms and that minimizes the losses to the financial system and the economy if such a firm should fail. In doing so, we aim to force these firms to take into account the costs that they impose on the broader financial system, soak up the implicit subsidy these firms enjoy due to market perceptions of their systemic importance, and give the firms regulatory incentives to shrink their systemic footprint.

Complementing these efforts, the Federal Reserve has been working for some time with other regulatory agencies and central banks around the world to design and implement a stronger set of prudential requirements for large, internationally active banking firms. These efforts include the agreements reached in December on the major elements of the new Basel III prudential framework for large, globally active banks. Basel III should make the financial system more stable and reduce the likelihood of future financial crises by requiring large banks to hold more and better-quality capital and more-robust liquidity buffers. A more stable financial system will benefit all banking institutions and, of course, our economy as a whole. We are working to adopt the Basel III framework in the United States in a timely manner.

A central issue that we and the other banking agencies face in implementing Basel III in the United States is deciding how these capital rules will be applied for banks that are not systemic or internationally active. We recognize the importance of striking the right balance between promoting safety and soundness throughout the banking system and keeping the compliance costs for smaller banking firms as low as possible. Also, to minimize the impact of the new capital rules on credit availability while the global economy is still recovering, we and our international colleagues have agreed to allow long transition periods for the implementation of the new standards.

In addition to stricter regulation and supervision of large financial firms, the Dodd-Frank Act places new checks on the growth by acquisition of our major financial firms. It expands current restraints on acquisitions by bank holding companies to include a broader range of acquired firms (not just banks) and a broader range of liabilities (not just deposits). This expansion reflects a financial system that has changed in important ways since 1994, when the Congress first adopted concentration limits for banks and bank holding companies.

The act also imposes new restrictions on the capital markets activities of banking firms–restrictions that will disproportionately affect the structure and profitability of the largest banking firms. For example, the so-called Volcker rule will restrict the ability of banking firms to engage in proprietary trading of securities and derivatives and to invest in or sponsor private investment funds.

Among the most important aspects of act are the measures that it authorizes to reduce the financial and economic effects of the failure of large firms. A clear lesson of the past few years is that the government must not be forced to choose between bailing out a systemically important firm and having it fail in a disorderly and disruptive manner. Instead, we need the tools to resolve a failing firm in a manner that preserves market discipline–by ensuring that shareholders and creditors incur losses and that culpable managers are replaced–and that at the same time cushions the broader financial system from the possibly destabilizing effects of the firm’s collapse. Of course, such a framework has been in place for banks for several decades now, as you know. The Dodd-Frank Act creates an analogous framework for systemically important nonbank financial firms, including bank holding companies. Resolving a large, multinational financial firm safely will likely always be a difficult challenge, and a great deal of work remains to be done to make these new authorities fully effective. Ultimately, though, these changes will mitigate moral hazard in our financial system by reducing expectations of government support by the creditors and counterparties of large firms. Taken together, the measures I have described should give us a financial system that is safer, more efficient, and more equitable.

In short, two key objectives of financial regulatory reform are, first, addressing the problems that emerged in the largest, most complex financial firms during the crisis and, second, creating a better balance with respect to regulation and oversight between banks and nonbank financial firms. The Federal Reserve believes that these are the right goals for reform. We are committed to working with the other U.S. financial regulatory agencies to implement the act and related reforms in a manner that both achieves the law’s key objectives and appropriately takes into account the risk profiles and business models of smaller banking firms, including community banks.

Before I conclude my remarks, let me say a few words about the transfer of thrift holding company supervisory authority to the Federal Reserve. We have been working closely with the Office of Thrift Supervision, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation to make this transfer as smooth as possible, and progress so far has been good. The Federal Reserve believes that any company that controls a depository institution should be held to appropriate prudential standards, including those for capital, liquidity, and risk management. As such, we intend to create an oversight regime for thrift holding companies that is consistent with, and is as rigorous as, the supervisory regime we apply to bank holding companies. That said, we appreciate that thrift and bank holding companies differ in important ways, play different roles in our economy, and will remain governed by different statutes. We will be mindful of these differences and of the unique characteristics of the thrift industry as we develop our supervisory approach to thrift holding companies.

Conclusion
My colleague, Governor Duke, recently told our examiners that “community bankers are creative, committed, stubborn, and resilient.” I know she won’t mind my repeating that sentiment here, and I’m sure most of the community bankers in this room would wear those words as a badge of honor. Community banks face substantial challenges in the months and years to come, including still-difficult economic conditions, continued uncertainties in real estate and other key markets, and a changing regulatory environment. But community banks have faced difficult times before, and the industry has remained vibrant and resilient. I am confident that community banking will successfully navigate these new challenges as well. Thank you for what you do every day to meet the needs of your communities and to help our economy grow stronger.

1. For supervisory purposes, the Federal Reserve generally considers banking organizations with assets of $10 billion or less to be community banking organizations and those with assets between $10 billion and $50 billion to be regional banking organizations.

2. This group replaces the former Thrift Institution Advisory Council, which provided the Board with useful information from the perspective of thrift institutions and credit unions.

Numerous articles are being published about how consumers will be hurt by the Dodd-Frank financial reform which includes the Durbin Debit Card Interchange cap, and although it may be flawed, so is the spin in the news. The Durbin amendment limits the amount of profit a bank can make on interchange fees for debit cards. The debit interchange limit portion of the law  is in committee for creation of final details.

The Durbin Debit Card Interchange Fee Cap Hurts Consumers, by David John on heritage.org.

Small banks and credit unions are exempt from the regulation.

THE QUOTE  “However, several banking regulators, including Federal Reserve Chairman Ben Bernanke, say that in practice this exemption may not work and the overall price cap could still apply to all sizes of debit card issuers. Both they and representatives of smaller issuers argue that merchants could refuse to accept debit cards issued by smaller banks and credit unions because the merchants would have to pay higher fees.”

THE FACTS:

• Is the cashier going to look at the debit card and decide “Sorry, this is small bank, we’lll need a different card.” Of course not!
• Is management going to give them a list of small banks and tell them to look at it before accepting cards, thereby slowing down the checkout line? Never!
• Is a merchant allowed to  discriminate which bank issued debit card they are going to accept? No, there are very strong rules against that.

THE QUOTE: “Faced with sharply lower profits from debit card use, card issuers are almost certain to react by doing one or more of the following: imposing an annual fee on debit cards; raising other fees that would be paid by consumers; or reducing the interest rates paid on consumer deposits. While such a response would hurt all consumers, it would especially damage those with moderate and lower incomes.”

The most common response will be to reduce debit rewards programs per the banks own PR.  How many low and moderate income consumers are earning interest on their deposits? I’ll be shocked if the number is above zero for low income consumers, and not a lot more for moderate. The average consumer is in debt, not making money on deposits.

Comments: The ink is not dry yet on what the final program will be. Visa Europe has capped its debit card interchange fees at 0.2 percent of each transaction, and US interchange rates currently average about six times that. So there is room for some reduction. Surely there is a number that will enable banks to make a fair profit. The money being spent on lobbying, and now direct mail and TV to consumers is misleading and inflammatory.

President Obama signed an  Executive Order regarding Libya Sanctions. Essentially, credit cards issued from Libyan banks cannot be accepted for payment in the US. Effective immediately Chase Paymentech will block any transactions with BIN’s issued from Libyan banks.

February 24, 2011 from HHS, Large hospital system to improve policies and procedures safeguarding patient information.

The General Hospital Corporation and Massachusetts General Physicians Organization Inc. (Mass General) has agreed to pay the U.S. government $1,000,000 to settle potential violations of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) Privacy Rule, the U.S. Department of Health and Human Services (HHS) announced today.

Mass General, one of the nation’s oldest and largest hospitals, signed a Resolution Agreement with HHS that requires it to develop and implement a comprehensive set of policies and procedures to safeguard the privacy of its patients. The settlement follows an extensive investigation by the HHS Office for Civil Rights (OCR), which enforces the HIPAA Privacy and Security Rules. The HIPAA Privacy Rule requires health plans, health care clearinghouses and most health care providers (covered entities) to protect the privacy of patient information through administrative, physical and technical safeguards at all times.

“We hope the health care industry will take a close look at this agreement and recognize that OCR is serious about HIPAA enforcement. It is a covered entity’s responsibility to protect its patients’ health information,” said OCR Director Georgina Verdugo.

The incident giving rise to the agreement involved the loss of protected health information (PHI) of 192 patients of Mass General’s Infectious Disease Associates outpatient practice, including patients with HIV/AIDS. OCR opened its investigation of Mass General after a complaint was filed by a patient whose PHI was lost on March 9, 2009. OCR’s investigation indicated that Mass General failed to implement reasonable, appropriate safeguards to protect the privacy of PHI when removed from Mass General’s premises and impermissibly disclosed PHI potentially violating provisions of the HIPAA Privacy Rule.

The impermissible disclosure of PHI involved the loss of documents consisting of a patient schedule containing names and medical record numbers for a group of 192 patients, and billing encounter forms containing the name, date of birth, medical record number, health insurer and policy number, diagnosis and name of providers for 66 of those patients. These documents were lost on March 9, 2009, when a Mass General employee, while commuting to work, left the documents on the subway train that were never recovered.

Mass General also agreed to enter into a Corrective Action Plan (CAP), which requires the hospital to:

• Develop and implement a comprehensive set of policies and procedures that ensure PHI is protected when removed from Mass General’s premises;
• Train workforce members on these policies and procedures; and
• Designate the Director of Internal Audit Services of Partners HealthCare System Inc. to serve as an internal monitor who will conduct assessments of Mass General’s compliance with the CAP and render semi-annual reports to HHS for a 3-year period.

“To avoid enforcement penalties, covered entities must ensure they are always in compliance with the HIPAA Privacy and Security Rules,” said Verdugo. “A robust compliance program includes employee training, vigilant implementation of policies and procedures, regular internal audits, and a prompt action plan to respond to incidents.”

The HHS Resolution Agreement and CAP can be found on the OCR website at http://www.hhs.gov/ocr/privacy/hipaa/news/mghnews.html

Additional information about OCR’s enforcement activities can be found at http://www.hhs.gov/ocr/privacy/hipaa/enforcement/examples/index.html.

In a unanimous decision, the California Supreme  Court prohibits retail stores in California from asking customers to provide a ZIP code when making a purchase, holding that holding that ZIP codes are “personal identification information” for the purposes of the Song-Beverly Credit Card Act. Retail store cashiers routinely asking, “May I have your zip code please?”, is about to disappear.

Here is an extract of the Song-Beverly Act of 1971

1747.8.  (a) Except as provided in subdivision (c), no person, firm,
partnership, association, or corporation which accepts credit cards
for the transaction of business shall do either of the following:
   (1) Request, or require as a condition to accepting the credit
card as payment in full or in part for goods or services, the
cardholder to write any personal identification information upon the
credit card transaction form or otherwise.

Statutory penalties are up to $250 for the first violation and $1,000 for each subsequent violation.

RAMIFICATIONS:

California is short on cash. Enforcing this ruling could bring in big money for the state. Why risk fines? I recommend merchants inform cashiers not to ask the question, and post a bulletin in the “break room” as a reminder. Note, the ruling applies to card present transactions only.

Additionally, if the point of sale system prompts for zip code, whether optional or required,  update the system to remove the prompt. With an estimated 1.5 million merchants in California and 15 minutes to download a terminal update, there is the potential for merchants to experience delays in updating their systems.

RECOMMENDATIONS

• For a dial up terminal, call your payment processor, ask to remove the zip code prompt from the program file, and then perform a partial download which will update the terminal.
• For POS systems, contact your software provider.
• For merchants using our host-based technology solution, please review your merchant settings. The zip code prompt is manageable at the administrative user level for all merchant accounts. This setting will not affect interchange qualification due to our back-end technology for least cost routing.
• If you can’t instantly update what happens at your POS, contact us immediately to find out more about how we can help you avoid these situations in the future.

NOTABLE:

This ruling is yet another situation driving the need for merchants to have host-based payment processing technology. Updates are instant across local, regional and entire merchant operations instead of downloads to individual terminals.

Below is a copy of the filing.

Filed 2/10/11
IN THE SUPREME COURT OF CALIFORNIA
JESSICA PINEDA,    ) ) Plaintiff and Appellant,    ) ) v. ) ) WILLIAMS-SONOMA STORES, INC.,    ) ) Defendant and Respondent.    ) ____________________________________)
S178241 Ct.App. 4/1 D054355
San Diego County Super. Ct. No.
37-2008-00086061-CU-BT-CTL
The Song-Beverly Credit Card Act of 1971 (Credit Card Act) (Civ. Code, § 1747 et seq.) is “designed to promote consumer protection.” (Florez v. Linens ’N Things, Inc. (2003) 108 Cal.App.4th 447, 450 (Florez).) One of its provisions, section 1747.08, prohibits businesses from requesting that cardholders provide “personal identification information” during credit card transactions, and then recording that information. (Civ. Code, § 1747.08, subd. (a)(2).)1
Plaintiff sued defendant retailer, asserting a violation of the Credit Card Act. Plaintiff alleges that while she was paying for a purchase with her credit card in one of defendant’s stores, the cashier asked plaintiff for her ZIP code. Believing it necessary to complete the transaction, plaintiff provided the requested
1
All unlabeled statutory references are to the Civil Code.
information and the cashier recorded it. Plaintiff further alleges that defendant subsequently used her name and ZIP code to locate her home address.2
We are now asked to resolve whether section 1747.08 is violated when a
business requests and records a customer’s ZIP code during a credit card transaction. In light of the statute’s plain language, protective purpose, and legislative history, we conclude a ZIP code constitutes “personal identification information” as that phrase is used in section 1747.08. Thus, requesting and recording a cardholder’s ZIP code, without more, violates the Credit Card Act. We therefore reverse the contrary judgment of the Court of Appeal and remand for further proceedings consistent with our decision.
FACTS AND PROCEDURAL HISTORY
Because we are reviewing the sustaining of a demurrer, we assume as true all facts alleged in the complaint. (Sheehan v. San Francisco 49ers, Ltd. (2009) 45 Cal.4th 992, 996.)
In June 2008, plaintiff Jessica Pineda filed a complaint against defendant Williams-Sonoma Stores, Inc.3    The complaint alleged the following:
Plaintiff visited one of defendant’s California stores and selected an item
for purchase. She then went to the cashier to pay for the item with her credit card.
2
ZIP is an acronym that stands for “Zone Improvement Plan.” (U.S. Postal
Service, Mailing Standards of the United States Postal Service: Domestic Mail Manual, ch. 602, subtopic 1.8.1 <http://pe.usps.com/text/dmm300/602.htm> [as of Feb. 10, 2011] (DMM).)
3
According to its Web site, Williams-Sonoma is “the premier specialty retailer of home furnishings and gourmet cookware in the United States.” (Williams-Sonoma, About Us <http://www.williams-sonoma.com/ customer- service/about-us.html> [as of Feb. 10, 2011].) The company operates “more than 250 stores nationwide, a direct-mail business that distributes millions of catalogs a year, and a highly successful e-commerce site.” (Ibid.)
2
The cashier asked plaintiff for her ZIP code and, believing she was required to provide the requested information to complete the transaction, plaintiff provided it. The cashier entered plaintiff’s ZIP code into the electronic cash register and then completed the transaction. At the end of the transaction, defendant had plaintiff’s credit card number, name, and ZIP code recorded in its database.
Defendant subsequently used customized computer software to perform reverse searches from databases that contain millions of names, e-mail addresses, telephone numbers, and street addresses, and that are indexed in a manner resembling a reverse telephone book. The software matched plaintiff’s name and ZIP code with plaintiff’s previously undisclosed address, giving defendant the information, which it now maintains in its own database. Defendant uses its database to market products to customers and may also sell the information it has compiled to other businesses.
Plaintiff filed the matter as a putative class action, alleging defendant had violated section 1747.08 and the unfair competition law (UCL) (Bus. & Prof. Code, § 17200 et seq.). She also asserted an invasion of privacy claim. Defendant demurred, arguing a ZIP code is not “personal identification information” as that phrase is used in section 1747.08, that plaintiff lacked standing to bring her UCL claim, and that the invasion of privacy claim failed for, among other reasons, failure to allege all necessary elements. Plaintiff conceded the demurrer as to the UCL claim, and the trial court subsequently sustained the demurrer as to the remaining causes of action without leave to amend. As for the Credit Card Act claim, the trial court agreed with defendant and concluded a ZIP code does not constitute “personal identification information” as that term is defined in section 1747.08.
The Court of Appeal affirmed in all respects. With respect to the Credit Card Act claim, the Court of Appeal relied upon Party City Corp. v. Superior
3
Court (2008) 169 Cal.App.4th 497 (Party City), which similarly concluded a ZIP code, without more, does not constitute personal identification information.4
Plaintiff sought our review regarding both her Credit Card Act claim and her invasion of privacy cause of action. We granted review, but only of plaintiff’s Credit Card Act claim.5
DISCUSSION
We independently review questions of statutory construction. (Imperial Merchant Services, Inc. v. Hunt (2009) 47 Cal.4th 381, 387.) In doing so, we look first to the words of a statute, “because they generally provide the most reliable
4
Both opinions were issued by Division One of the Fourth District Court of Appeal.
5
In its answer brief, defendant argues our jurisdiction to grant review lapsed under California Rules of Court, rule 8.512(b). Under the rule, we may order review within 60 days after a petition for review is filed. (Ibid.) Before the 60 days have expired, we may extend the time in which to consider review, to a date not later than 90 days after a petition was filed. (Ibid.) If we have not ruled on the petition within the time allowed, it is deemed denied. (Ibid.)
The docket shows plaintiff’s petition for review was filed on November 25,
2009. On February 4, 2010, after 60 days had already run, an order was entered extending time for review to February 23, 2010, 90 days after the petition was filed. The order was entered nunc pro tunc as of January 22, 2010, a date before the original 60-day window had expired. Defendant contends such a nunc pro tunc order was invalid. We disagree.
The petition was originally due to be considered prior to the expiration of the 60 days. Concluding we needed more time, we put the matter over to a later petitions conference. The act of putting the matter over necessarily included our extending time for review. However, the clerk inadvertently failed to enter an order reflecting that act. Under the circumstances, the nunc pro tunc order merely caused the record to show something that was actually done but that was mistakenly not entered in the record at the time the act was done. Thus, the use of a nunc pro tunc order was appropriate and our subsequent grant of review on February 10, 2010, was within this court’s jurisdiction. (See Cowdery v. London & San Francisco Bank (1903) 139 Cal. 298, 306.)
4
indicator of legislative intent.” (Hsu v. Abbara (1995) 9 Cal.4th 863, 871.) We give the words their usual and ordinary meaning (Lungren v. Deukmejian (1988) 45 Cal.3d 727, 735), while construing them in light of the statute as a whole and the statute’s purpose (Walker v. Superior Court (1998) 47 Cal.3d 112, 124). “In other words, ‘ “we do not construe statutes in isolation, but rather read every statute ‘with reference to the entire scheme of law of which it is part so that the whole may be harmonized and retain effectiveness.’ ” ’ ” (Smith v. Superior Court (2006) 39 Cal.4th 77, 83.) We are also mindful of “the general rule that civil statutes for the protection of the public are, generally, broadly construed in favor of that protective purpose.” (People ex rel. Lungren v. Superior Court (1996) 14 Cal.4th 294, 313 (Lungren); see Florez, supra, 108 Cal.App.4th at p. 450 [liberally construing former § 1747.8, now § 1747.08].) “If there is no ambiguity in the language, we presume the Legislature meant what it said and the plain meaning of the statute governs.” (People v. Snook (1997) 16 Cal.4th 1210, 1215.) “Only when the statute’s language is ambiguous or susceptible of more than one reasonable interpretation, may the court turn to extrinsic aids to assist in interpretation.” (Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, 1103.) Our discussion thus begins with the words of section 1747.08.
Section 1747.08, subdivision (a) provides, in pertinent part, “[N]o person, firm, partnership, association, or corporation that accepts credit cards for the transaction of business shall . . . : [¶] . . . [¶] (2) Request, or require as a condition to accepting the credit card as payment in full or in part for goods or services, the cardholder to provide personal identification information, which the person, firm, partnership, association, or corporation accepting the credit card writes, causes to be written, or otherwise records upon the credit card transaction form or
5
otherwise.” (§ 1747.08, subd. (a)(2), italics added.)6 Subdivision (b) defines personal identification information as “information concerning the cardholder, other than information set forth on the credit card, and including, but not limited to, the cardholder’s address and telephone number.” (§ 1747.08, subd. (b).) Because we must accept as true plaintiff’s allegation that defendant requested and then recorded her ZIP code, the outcome of this case hinges on whether a cardholder’s ZIP code, without more, constitutes personal identification information within the meaning of section 1747.08. We hold that it does.
Subdivision (b) defines personal identification information as “information concerning the cardholder . . . including, but not limited to, the cardholder’s address and telephone number.” (§ 1747.08, subd. (b), italics added.) “Concerning” is a broad term meaning “pertaining to; regarding; having relation to; [or] respecting . . . .” (Webster’s New Internat. Dict. (2d ed. 1941) p. 552.) A cardholder’s ZIP code, which refers to the area where a cardholder works or lives (see DMM, supra, ch. 602, subtopic 1.8.1 <http://pe.usps.com/text/dmm300/602. htm> [as of Feb. 10, 2011] [each U.S. post office is assigned at least one unique 5- digit ZIP code), is certainly information that pertains to or regards the cardholder.
In nonetheless concluding the Legislature did not intend for a ZIP code, without more, to constitute personal identification information, the Court of Appeal pointed to the enumerated examples of such information in subdivision (b), i.e., “the cardholder’s address and telephone number.” (§ 1747.08, subd. (b).)
6
Section 1747.08 contains some exceptions, including when a credit card is being used as a deposit or for cash advances, when the entity accepting the card is contractually required to provide the information to complete the transaction or is obligated to record the information under federal law or regulation, or when the information is required for a purpose incidental to but related to the transaction, such as for shipping, delivery, servicing, or installation. (Id., subd. (c).)
6
Invoking the doctrine ejusdem generis, whereby a “general term ordinarily is understood as being ‘ “restricted to those things that are similar to those which are enumerated specifically” ’ ” (Costco Wholesale Corp. v. Superior Court (2009) 47 Cal.4th 725, 743 (conc. opn. of George, C.J.)), the Court of Appeal reasoned that an address and telephone number are “specific in nature regarding an individual.” By contrast, the court continued, a ZIP code pertains to the group of individuals who live within the ZIP code. Thus, the Court of Appeal concluded, a ZIP code, without more, is unlike the other terms specifically identified in subdivision (b).
There are several problems with this reasoning. First, a ZIP code is readily understood to be part of an address; when one addresses a letter to another person, a ZIP code is always included. The question then is whether the Legislature, by providing that “personal identification information” includes “the cardholder’s address” (§ 1747.08, subd. (b)), intended to include components of the address. The answer must be yes. Otherwise, a business could ask not just for a cardholder’s ZIP code, but also for the cardholder’s street and city in addition to the ZIP code, so long as it did not also ask for the house number. Such a construction would render the statute’s protections hollow. Thus, the word “address” in the statute should be construed as encompassing not only a complete address, but also its components.
Second, the court’s conclusion rests upon the assumption that a complete
address and telephone number, unlike a ZIP code, are specific to an individual. That this assumption holds true in all, or even most, instances is doubtful. In the case of a cardholder’s home address, for example, the information may pertain to a group of individuals living in the same household. Similarly, a home telephone number might well refer to more than one individual. The problem is even more evident in the case of a cardholder’s work address or telephone number — such information could easily pertain to tens, hundreds, or even thousands of
7
individuals.7    Of course, section 1747.08 explicitly provides that a cardholder’s address and telephone number constitute personal identification information (id., subd. (b)); that such information might also pertain to individuals other than the cardholder is immaterial. Similarly, that a cardholder’s ZIP code pertains to individuals in addition to the cardholder does not render it dissimilar to an address or telephone number.
More significantly, the Court of Appeal ignores another reasonable interpretation of what the enumerated terms in section 1747.08, subdivision (b) have in common, that is, they both constitute information unnecessary to the sales transaction that, alone or together with other data such as a cardholder’s name or credit card number, can be used for the retailer’s business purposes. Under this reading, a cardholder’s ZIP code is similar to his or her address or telephone number, in that a ZIP code is both unnecessary to the transaction and can be used, together with the cardholder’s name, to locate his or her full address. (Levitt and Rosch, Computer Counselor: Putting Internet Search Engines to New Uses (May 2006) 29 L.A. Law. 55, 55; see Solove, Privacy and Power: Computer Databases and Metaphors for Information Privacy (2001) 53 Stan. L.Rev. 1393, 1406-1408.) The retailer can then, as plaintiff alleges defendant has done here, use the accumulated information for its own purposes or sell the information to other businesses.
7
Party City, upon which the Court of Appeal opinion heavily relies, assumes that a cardholder’s work address or telephone number constitutes personal identification information. (Party City, supra, 169 Cal.App.4th at p. 518.) While we express no opinion on this point, we acknowledge that nothing in section 1747.08, subdivision (b), explicitly limits its scope to a cardholder’s home address or telephone number.
8
There are several reasons to prefer this latter, broader interpretation over the one adopted by the Court of Appeal. First, the interpretation is more consistent with the rule that courts should liberally construe remedial statutes in favor of their protective purpose (Lungren, supra, 14 Cal.4th at p. 313), which, in the case of section 1747.08, includes addressing “the misuse of personal identification information for, inter alia, marketing purposes.” (Absher v. AutoZone, Inc. (2008) 164 Cal.App.4th 332, 345 (Absher).)8    The Court of Appeal’s interpretation, by contrast, would permit retailers to obtain indirectly what they are clearly prohibited from obtaining directly, “end-running” the statute’s clear purpose. This is so because information that can be permissibly obtained under the Court of Appeal’s construction could easily be used to locate the cardholder’s complete address or telephone number. Such an interpretation would vitiate the statute’s effectiveness. Moreover, that the Legislature intended a broad reading of section 1747.08 can be inferred from the expansive language it employed, e.g., “concerning” in subdivision (b) and “any personal identification information” in subdivision (a)(1). (Italics added.) The use of the broad word “any” suggests the Legislature did not want the category of information protected under the statute to be narrowly construed.
8
Party City, supra, 169 Cal.App.4th at pages 510 to 511, by contrast, concludes that section 1747.08, subdivision (b), should be strictly construed under the rule for construing penal statutes because violations of section 1747.08 are subject to a “mandatory civil penalty.” We disagree. First, as we held in Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 448, section 1747.08, subdivision (e), “does not mandate fixed penalties; rather, it sets maximum penalties of $250 for the first violation and $1,000 for each subsequent violation.” Second, “the rule of strict construction of penal statutes has generally been applied in this state to criminal statutes, rather than statutes which prescribe only civil monetary penalties.” (Lungren, supra, 14 Cal.4th at p. 312.)
9
Second, only the broader interpretation is consistent with section 1747.08,
subdivision (d). Subdivision (d) permits businesses to “requir[e] the cardholder,
as a condition to accepting the credit card . . . , to provide reasonable forms of
positive identification, which may include a driver’s license or a California state
identification card, . . . provided that none of the information contained thereon is written or recorded . . . .” (§ 1747.08, subd. (d), italics added.) Of course, driver’s licenses and state identification cards contain individuals’ addresses, including ZIP codes. (Veh. Code, §§ 12811, subd. (a)(1)(A), 13005, subd. (a); People v. McKay (2000) 27 Cal.4th 601, 620.) Thus, under Civil Code section 1747.08, subdivision (d), a business may require a cardholder to provide a driver license, but it may not record any of the information on the license, including the cardholder’s ZIP code. Under the Court of Appeal’s interpretation, the Legislature inexplicably permitted in section 1747.08, subdivision (a)(2), what it explicitly forbade in subdivision (d) — the requesting and recording of a ZIP code.9 We decline to conclude such an inconsonant result was intended. (Absher, supra, 164 Cal.App.4th at p. 343 [“A statute open to more than one interpretation should be interpreted so as to ‘ “avoid anomalous or absurd results.” ’ [Citations.]”].)10
In light of the foregoing, and particularly given the internal inconsistency that would arise under the Court of Appeal’s alternate construction, we conclude
9
Defendant points out that a cardholder’s name, which all parties agree can permissibly be obtained by the retailer, also appears on a driver’s license. This is true, albeit irrelevant, as subdivision (b) explicitly excludes information appearing on the credit card, such as a cardholder’s name, from the definition of personal identification information. (§ 1747.08, subd. (b).)
10
The Court of Appeal did not discuss subdivision (d) of section 1747.08. While Party City, supra, 169 Cal.App.4th at page 518, did briefly mention the issue, the court dismissed it without explanation.
10
that the only reasonable interpretation of section 1747.08 is that personal
identification information includes a cardholder’s ZIP code. We disapprove Party City Corp. v. Superior Court, supra, 169 Cal.App.4th 497, to the extent it is inconsistent with our opinion.
Even were we to conclude that the alternative interpretation urged by defendant and adopted by the Court of Appeal was reasonable, the legislative history of section 1747.08 offers additional evidence that plaintiff’s construction is the correct one.11    The Credit Card Act was enacted in 1971 to “impose[] fair business practices for the protection of the consumers.” (Young v. Bank of America (1983) 141 Cal.App.3d 108, 114.) It made “major changes in the law dealing with credit card practices by prescribing procedures for billing, billing errors, dissemination of false credit information, issuance and unauthorized use of credit cards.” (Sen. Song, sponsor of Sen. Bill No. 97 (1971 Reg. Sess.) Enrolled Bill mem. to Governor (Oct. 12, 1971) p. 1.) As originally enacted, however, the Credit Card Act did not contain section 1747.08 or any analogous provision.
In 1990, the Legislature enacted former section 1747.812 (Assem. Bill No. 2920 (1989-1990 Reg. Sess.) § 1), seeking “to address the misuse of personal identification information for, inter alia, marketing purposes, and [finding] that there would be no legitimate need to obtain such information from credit card customers if it was not necessary to the completion of the credit card transaction.” (Absher, supra, 164 Cal.App.4th at p. 345.) The statute’s overriding purpose was
11
The Court of Appeal did not discuss the legislative history of section 1747.08. And, while the opinion in Party City, supra, 169 Cal.App.4th at pages 514-516, has a section titled “Legislative History Arguments,” the court did not actually cite or discuss any of the statute’s legislative history.
12
The statute was later amended and renumbered as section 1747.08. (Stats. 2004, ch. 183, § 29.)
11
to “protect the personal privacy of consumers who pay for transactions with credit cards.” (Assem. Com. on Finance & Insurance, Analysis of Assem. Bill No. 2920 (1989-1990 Reg. Sess.) as amended Mar. 19, 1990, p. 2.)
The Senate Committee on Judiciary’s analysis highlighted the motivating concerns: “The Problem [¶] . . . [¶] Retailers acquire this additional personal information for their own business purposes — for example, to build mailing and telephone lists which they can subsequently use for their own in-house marketing efforts, or sell to direct-mail or tele-marketing specialists, or to others.” (Sen. Com. on Judiciary, Analysis of Assem. Bill No. 2920 (1989-1990 Reg. Sess.) as amended June 27, 1990, pp. 3-4.) To protect consumers, the Legislature sought to prohibit businesses from “requiring information that merchants, banks or credit card companies do not require or need.” (Assem. Com. on Finance and Insurance, Analysis of Assem. Bill No. 2920 (1989-1990 Reg. Sess.) as amended Mar. 19, 1990, p. 2.)
A year later, in 1991, the Legislature amended former section 1747.8. (Assem. Bill No. 1477 (1991-1992 Reg. Sess.) § 2.) Two of the changes shed further light on the Legislature’s intent regarding former section 1747.8’s scope. First, the Legislature added a provision (former § 1747.8, subd. (d)) (former subdivision (d)) substantially similar to the subdivision (d) now in section 1747.08, permitting businesses to require cardholders provide identification so long as none of the information contained thereon was recorded. (Stats. 1991, ch. 1089, § 2, p. 5042.) The adoption of former subdivision (d) was described as “a clarifying, nonsubstantive change.” (State & Consumer Services Agency, Enrolled Bill Rep. on Assem. Bill No. 1477 (1991-1992 Reg. Sess.) Sept. 9, 1991, p. 3.) Defendant argues that, because the adoption of former subdivision (d) was intended to be nonsubstantive, it is irrelevant to our inquiry here. We draw the opposite conclusion. That former subdivision (d) was considered merely
12
clarifying and nonsubstantive suggests the Legislature understood former section 1747.8 to already prohibit the requesting and recording of any of the information, including ZIP codes, contained on driver’s licenses and state identification cards.
Second, the 1990 version of former section 1747.8 forbade businesses from “requir[ing] the cardholder, as a condition to accepting the credit card, to provide personal identification information . . . .” (Stats. 1990, ch. 999, § 1, p. 4192.) In 1991, the provision was broadened, forbidding businesses from “request[ing], or requir[ing] as a condition to accepting the credit card . . . , the cardholder to provide personal identification information . . . .” (Stats. 1991, ch. 1089, § 2,
p. 5043, italics added.) “The obvious purpose of the 1991 amendment was to prevent retailers from ‘requesting’ personal identification information and then matching it with the consumer’s credit card number.” (Florez, supra, 108 Cal.App.4th at p. 453.) “[T]he 1991 amendment prevents a retailer from making an end-run around the law by claiming the customer furnished personal identification data ‘voluntarily.’ ” (Ibid.) That the Legislature so expanded the scope of former section 1747.8 is further evidence it intended a broad consumer protection statute.
To be sure, the legislative history does not specifically address the scope of section 1747.08, subdivision (b) or whether the Legislature intended a ZIP code, without more, to constitute personal identification information. However, the legislative history of the Credit Card Act in general, and section 1747.08 in particular, demonstrates the Legislature intended to provide robust consumer protections by prohibiting retailers from soliciting and recording information about the cardholder that is unnecessary to the credit card transaction. Plaintiff’s interpretation of section 1747.08 is the one that is most consistent with that legislative purpose.
13
Thus, in light of the statutory language, as well as the legislative history and evident purpose of the statute, we hold that personal identification information, as that term is used in section 1747.08, includes a cardholder’s ZIP code.
We briefly address defendant’s contention that this construction violates
due process. First, defendant argues such an interpretation is unconstitutionally oppressive because it would result in penalties “approach[ing] confiscation of [defendant’s] entire business . . . .” Not so. As we have previously noted (ante, at p. 9, fn. 8), the statute “does not mandate fixed penalties; rather, it sets maximum penalties of $250 for the first violation and $1,000 for each subsequent violation.” (Linder v. Thrifty Oil Co., supra, 23 Cal.4th at p. 448.) “Presumably this could span between a penny (or even the proverbial peppercorn we all encountered in law school) to the maximum amounts authorized by the statute.” (The TJX Companies, Inc. v. Superior Court (2008) 163 Cal.App.4th 80, 86.) Thus, the amount of the penalties awarded rests within the sound discretion of the trial court. (Ibid.)
Second, defendant contends that plaintiff’s interpretation renders the statute unconstitutionally vague and, thus, our adoption of that interpretation should be prospectively applied only. We are not persuaded. In our view, the statute provides constitutionally adequate notice of proscribed conduct, including its reference to a cardholder’s address as an example of personal identification information (§ 1747.08, subd. (b)) as well as its prohibition against retailers’ recording any of the information contained on identification cards (id., subd. (d)). Moreover, while Party City, supra, 169 Cal.App.4th 497, reached a contrary conclusion, both defendant’s conduct and the filing of plaintiff’s complaint predate that decision; it therefore cannot be convincingly argued that the practice of asking customers for their ZIP codes was adopted in reliance on Party City.
14
Indeed, it is difficult to see how a single decision by an inferior court could provide a basis to depart from the assumption of retrospective operation. (See People v. Guerra (1984) 37 Cal.3d 385, 401, disapproved on another ground in People v. Hedgecock (1990) 51 Cal.3d 395, 409-410.) In sum, defendant identifies no reason that would justify a departure from the usual rule of retrospective application. (See Grafton Partners v. Superior Court (2005) 36 Cal.4th 944, 967.)
DISPOSITION
The judgment of the Court of Appeals is reversed and the case is remanded for further proceedings consistent with this decision.
WE CONCUR:
CANTIL-SAKAUYE, C. J. KENNARD, J. BAXTER, J. WERDEGAR, J.
CHIN, J. CORRIGAN, J.
15
MORENO, J.
See next page for addresses and telephone numbers for counsel who argued in Supreme Court.
Name of Opinion Pineda v. Williams-Sonoma Stores, Inc. __________________________________________________________________________________
Unpublished Opinion Original Appeal Original Proceeding Review Granted XXX 178 Cal.App.4th 714 Rehearing Granted
__________________________________________________________________________________
Opinion No. S178241 Date Filed: February 10, 2011 __________________________________________________________________________________
Court: Superior County: San Diego Judge: Ronald S. Prager
__________________________________________________________________________________
Counsel:
Lindsay & Stonebarger, Stonebarger Law, Gene J. Stonebarger, James M. Lindsay, Richard D. Lambert;
Harrison Patterson O’Connor & Kinkead, Harrison Patterson & O’Connor, James R. Patterson, Harry W. Harrison, Matthew J. O’Connor and Cary A. Kinkead for Plaintiff and Appellant.
Atkins & Davidson, Todd C. Atkins and Clark L. Davidson for the Consumer Federation of California and The Privacy Rights Clearinghouse as Amici Curiae on behalf of Plaintiff and Appellant.
Sheppard Mullin Richter & Hampton, P. Craig Cardon and Elizabeth S. Berman for Defendant and Respondent.
Linda A. Wooley; Venable, John F. Cooney, Michael B. Garfinkel and Paul A. Rigali for Direct Marketing Association as Amicus Curiae on behalf of Defendant and Respondent.
Knox, Lemmon, Anapolsky & Schrimp and Thomas S. Knox for California Retailers Association as Amicus Curiae on behalf of Defendant and Respondent.
Cooley Godward Kronish, Cooley, Michelle C. Doolin, Lori R.E. Ploeger, Leo P. Norton and Darcie A. Tilly for The Gap, Inc., Old Navy, LLC, and Banana Republic, LLC, as Amici Curiae on behalf of Defendant and Respondent.
Call & Jensen, Matthew R. Orr, Melinda Evans and Scott R. Hatch for Kmart Holding Corporation as Amicus Curiae on behalf of Defendant and Respondent.
Counsel who argued in Supreme Court (not intended for publication with opinion):
Gene J. Stonebarger Stonebarger Law 75 Iron Point Circle, Suite 145 Folsom, CA 95630 (916) 235-7140
Todd C. Atkins Atkins & Davidson 101 West Broadway, Suite 1050 San Diego, CA 92101 (619) 231-4725
P. Craig Cardon Sheppard Mullin Richter & Hampton 1901 Avenue of the Stars, Suite 1600 Los Angeles, CA 90067 (310) 228-3700
Michelle C. Doolin Cooley 4401 Eastgate Mall San Diego, CA 92121 (858) 550-6000

Insights on the debit card portion of the Dodd-Frank Wall Street Reform and Consumer Protection Act are presented in this blog article. As complicated as the credit card processing industry is, it’s not surprising that those outside the industry, including the media, miss some important points. The debit card proposal by the Federal Reserve would establish debit card interchange fee standards and prohibit network exclusivity arrangements and routing restrictions. The media response is growing as the end of the public comments period nears, and today I read Debit card fees headed lower for merchants, published by the Sun Sentinel, a South Florida newspaper.

PART ONE: WHAT MERCHANTS REALLY PAY

First, let’s examine the often repeated cost merchants pay. The numbers reference 2009 Federal Reserve data. The “average debit cost is $.44 per transaction based on 1.14% of the purchase price. $.56 on swipe debit and $.23 on pin debit”.  Other than Wal-mart, you can bet most merchants pay more than this. Signature debit interchange is currently .95% for Visa and 1.05% for MasterCard, plus $.15 each. The example below is for a SWIPE RETAIL transaction.

$38.59 Average transaction using standard sale referenced

$.37 @ .95% interchange, non-negotiable.

$.15 per transaction interchange, non-negotiable.

$.04 Dues and assessments, non-negotiable.

$.08 merchant discount at 20 basis points, negotiable.

$.15 authorization, settlement, capture, varies by vendor, partially negotiable.

$.79 total cost to merchant= 2%

My point is that interchange is only part of the merchant cost. Pin debit has changed in the last 24 months. Merchant used to mostly pay a low fixed cost per transaction, but now that has shifted to more closely resemble the interchange table.

Here’s the same example using Interlink, one of the most popular networks.

$.31 @ .80% interchange, non-negotiable.

$.17 per transaction interchange, non-negotiable.

$.00 Dues and assessments, non-negotiable.

$.08 merchant discount at 20 basis points, negotiable.

$.15 authorization, settlement, capture, varies by vendor, partially negotiable.

$.71 total cost to merchant= 1.8%

A $.23 average pin debit cost is a thing of the past. It used to be a flat fee for pin-debit, but now virtually every network has moved to a percent of the sale, plus a pretty high transaction fee and no cap.  See    Pin-debit network fees 2010 chart for more details.

Media reports of merchants adding 1-2% to their products and services to cover costs is probably not enough on the low end. The ‘targeted average interchange is 1.79%’ according to a Visa report two years ago. Only the most efficient merchants are achieving that. Small businesses and many other retailers average over 2%. Internet companies pay higher fees. 2% tacked on to goods and services is more realistic.

PART 2 WHAT IT WILL COST UNDER THE NEW PLAN

Here’s what the proposal states. “Two alternative interchange fee standards would apply to all covered issuers: one based on each issuer’s costs, with a safe harbor (initially set at 7 cents per transaction) and a cap (initially set at 12 cents per transaction); and the other a stand-alone cap (initially set at 12 cents per transaction).”

It LIMITS what card issuers -the banks- can collect! It does not limit what the associations i.e. MasterCard, Discover, and Visa who set interchange rates, can charge. Merchants who think they’ll be paying $.12 a transaction in the future are being misled. Costs will almost certainly go down, but who knows what this will really shape into.

HOW CAN MERCHANTS LEVERAGE DEBIT INTERCHANGE FEE CHANGES

One idea being bandied about is discounts. The same Federal legislation signed into law in July 2010, enables merchants to offer discounts to buyers. For example, a merchant can offer a discount if the consumer chooses debit over credit.

What merchant will want cashiers making decisions about whether the card qualifies and how much of a discount the consumer can receive? The mistakes alone could offset any gains. Lucky for me, we have a technology solution that solves this problem for merchants. Here are some key elements:

• Identifies type of card.
• Automatically calculates discount and puts it on customer receipt.
• Merchant can view trends to determine when to offer the discount. For example, why offer a discount in the morning, if most customers already use their debit card during that time of day?
• Merchant can remotely turn on and off messaging at the consumer terminal with the discount offer.
• Cashiers are completely removed from the process of identifying any type of card. This has proven to increase pin-debit penetration from under 15% to over 75%.

THE REWARDS CARD DEBATE

Are consumers so attached to their rewards they won’t give them up? Everyone understands there is a cost associated with rewards, right? Banks will have to adjust their fees or their rewards plans, but it’s only debit cards, because credit cards are not affected by the proposal. Banks have been expanding rewards card plans on debit cards to collect more fees.  When the consumer enters their pin number, the bank won’t get that fee any more. The merchant also reduces risk because chargeback’s are eliminated. In my opinion, consumers will choose free use of their debit cards over rewards, and simply switch banks if they have to pay a fee.

What will merchants really pay in debit card fees under Fed proposal? I don’t know, but I’m certain of one thing. It won’t be $.12 a transaction.

Frequently the root of recurring billing complaints involves ecommerce transactions with an opt-out third party transaction that pops up after the initial purchase is completed. The Restore Online Shoppers’ Confidence Act signed into law December 29, 2010 to protect consumers from certain aggressive sales tactics on the Internet.

SEC. 2. FINDINGS; DECLARATION OF POLICY.