The simmering debate on smart card regulation boiled over at a Federal Reserve Board advisory group meeting last week.

Bankers on the Fed's Consumer Advisory Council argued against burdening smart cards with new rules, while activists pushed for more consumer protections.

The advisory group, which consists of bankers, community activists, businessmen, and lawyers, also debated Truth-in-Lending and the Community Reinvestment Act.

The smart card debate has particular significance because the Fed recently proposed exempting smart cards with less than $100 of value from the consumer protections contained in Regulation E, the rules that govern ATMs and debit cards.

"Smart cards are a way of life and they are coming," said David C. Flynn, regulatory risk manager at National City Corp., Cleveland. "But what we don't need is to overreact."

Excessive regulation would stymie U.S. efforts to catch up with the Europeans, who already are building smart card systems, he said.

"We don't want to kill the goose that is laying the golden egg," agreed Terry Jorde, president of Towner County State Bank, Cando, N.D. "Overprotection may inhibit product development."

Consumer advocates on the council didn't buy those arguments. Margot Saunders, managing attorney at the National Consumer Law Center, said the Fed should limit how much a person can lose with a smart card, just like it does for credit cards.

"To those people who live in poverty, $100 is a lot of money," she said.

She also urged the Fed to prevent check-cashing operators from issuing smart cards, since they would be more likely to fail, she said.

The group did agree on at least one point. Bankers and activists criticized the language the Fed used to categorize smart card systems that are exempt from consumer protections. Call smart cards that can be thrown out "disposable," rather than "off-line, unaccountable smart cards," they said.

Members also split on the need for changes to Truth-in-Lending disclosures. Consumer advocates favored expanding the number of fees included in the annual percentage rate, saying this would help consumers shop for the best deal.

Bankers, however, said the rate confuses consumers. They proposed replacing it with separate forms disclosing the interest rate and various fees.

"This is something that really could simplify the whole process," Mr. Flynn of National City said.

Robert Cook, a council member and partner in the Baltimore law firm of Venable, Baetjer & Howard, said the Fed should urge Congress to change the law to require the disclosures when the borrower first approaches the lender, rather than at closing. This would truly permit consumers to compare, he said.

Griffith L. Garwood, the Fed's director of consumer and community affairs, said the central bank would try to include these comments in an interim report it plans to submit shortly to Congress on Truth-in-Lending.

He also said the Fed would consider the comments when it revises the regulation at the end of the year.

Consumer activists on the council also pushed the Fed to make Community Reinvestment Act reports available over the Internet.

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