Consumers could wind up paying millions of dollars extra in liabilities resulting from lost or stolen electronic debit cards under a regulation issued recently by the Federal Reserve.
Rep. Frank Annunzio (D.-Ill.) has called on Fed Chairman G. William Miller to rescind the regulations as contrary to the intent of Congress.
The regulation was published March 28 but isn't scheduled to go into effect before May 1980. It specifies that the owner of an automated-teller-machine or point-of-sale debit card must notify the issuing bank of loss or theft within two days or be liable for $500 of unauthorized transactions. If notification is made within two days, the liability is only $50.
The catch is that written notification must be received by the bank-not mailed by the owner-within that period.
"That's where the rip-off lies," Annunzio stated. "Given today's slow and uncertain mail deliveries, in many cases it will be impossible for consumers to avoid the $500 loss even if they send the letter the instant they find out that the card has been lost or stolen."
When the regulation first was proposed, it embodied the "mailbox principle" as set forth in the Electronic Funds Transfer Act. The change was made at the request of several banks which persuaded the Fed governors that institutions should not be penalized by unauthorized withdrawals until they have been alerted by the card-holder.
Under the regulation, a customer is allowed-even encouraged-to notify the bank by telephone that a card has been lost or stolen. If the cardholder claims to have telephoned and the bank claims no record of the call, the burden of proof is on the bank. However, such disputes sometimes can be settled only in court, the Fed said in commenting yesterday on Annunzio's charges.
The proposal also permits informing the bank in person.
Holders of credit cards incur a maximum liability of $50 no matter when they notify the issuer of loss or theft. Congress raised the liability for debit holders of cards to a maximum of $500, while the Fed wanted it at $50.