In the face of insistent calls for legislation to protect debit card customers, MasterCard International Inc. said Wednesday it will limit consumer liability on unauthorized debit purchases to $50.
MasterCard said its U.S. member banks have agreed to adhere to that ceiling by yearend.
The move, which was not immediately duplicated by Visa U.S.A., puts MasterMoney debit cards on the same consumer protection footing as credit cards.
Under Federal Reserve Regulation E,which covers electronic funds transfer services, debit card customers can be held responsible under certain circumstances for unlimited losses if their cards are stolen or if their transaction accounts are fraudulently used.
The growing popularity of debit cards-MasterMoney volume doubled last year-and increasing awareness of the regulatory technicalities have led consumer activists and legislators to push for legal changes. Rep. Charles E. Schumer, D-N.Y., recently introduced a bill that would cap unauthorized- debit liability at $50.
MasterCard's preemptive strike is "a home run for all who carry MasterCards," said Alan J. Heuer, the card association's U.S. region president. "Banks should be commended for taking the initiative."
Regulation E, which codifies the Electronic Fund Transfer Act of 1978, requires banks to limit customers' debit card liability to $50 if the institution is notified within two days of a card's loss or theft. But that amount ratchets up if the cardholder delays making the report.
When the 1978 law was drafted, banking industry lobbyists convinced Congress that debit cards, because they were attached to checking accounts, should be treated differently from credit cards and their unsecured lines of credit.
The simpler credit card approach in Regulation Z, which bankers also resisted when first proposed in the 1960s, turned out to be a key factor in the cards' gaining popularity.
Also in contrast to credit card practices, Regulation E put "the onus on consumers to prove" that debit cards were fraudulently used, said Leslie Byrne, special assistant to the president in the U.S. Office of Consumer Affairs. She said she complained to Visa and MasterCard a year ago about the treatment of debit cards.
Irene Katen, MasterCard's vice president of business management, U.S. deposit access, said that in practice major banks have not forced consumers to bear the $500 liabilities that Reg E allows when they do not report losses within two days. Among them, she said, are Bank of Boston, Fleet Bank, Wells Fargo Bank, and Chase Manhattan Bank.
Ms. Katen said MasterCard's members brought up the issue before it was discussed on the U.S. board level.
MasterCard's $50 rule applies to all issuers of MasterMoney, the "off- line" card that is authorized and processed like a credit card. The Maestro on-line card, which moves money instantaneously and is not as widely held, is not covered.
The announcement did not fully satisfy Edmund Mierzwinski, director of the U.S. Public Interest Research Group.
"What the industry can give, it can take away," the consumer advocate said. "That's why I want legislation."
Some observers said MasterCard's move will likely force Visa to adopt a similar policy. But Visa would face greater costs, because "Visa has eight times as many debit cards as MasterCard," said James Shanahan of Business Dynamics Consulting, Nyack, N.Y.
Visa U.S.A. in San Francisco issued a statement that because it controls 80% of the debit market it "has a special responsibility to act in a prudent, thoughtful, and comprehensive manner" when altering operating rules.
Visa said it has been "considering extending additional protections to check card consumers, and an announcement will be made in the near future."
Henry M. Polmer of the Washington law firm Bell, Boyd & Lloyd said MasterCard's maneuver will be perceived as "very pro-consumer."
Mr. Polmer, was deputy counsel of the National Commission on Electronic Fund Transfers, a federal panel that set the EFT Act of 1978 in motion. He said MasterCard's action underscores the difference in standards applying to debit and credit cards. Credit and off-line debit cards function similarly, Mr. Polmer said, and therefore there are good reasons to have similar liability standards.
MasterCard does not expect a backlash from its members that would be on the hook for unauthorized transactions exceeding $50. The Purchase, N.Y.- based association said debit card losses totaled $1.8 million in the first quarter of 1997.
