BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
SB 933 (Oropeza)
As Amended March 8, 2010
Hearing Date: April 27, 2010
Fiscal: No
Urgency: No
SK:jd
SUBJECT
Debit Cards: Service Fees
DESCRIPTION
This bill would extend current law which prohibits retailers
from imposing a surcharge on credit card purchases to also
include debit card purchases.
BACKGROUND
A recent study by the Federal Reserve Bank of Boston found that
"[c]onsumers make 53 percent of their monthly payments with a
payment card (credit, debit, and prepaid). More consumers now
have debit cards than credit cards [80.2 percent versus 78.3
percent], and consumers use debit cards more often than cash,
credit cards, or checks individually." ("The 2008 Survey of
Consumer Payment Choice," April 2010, Federal Reserve Bank of
Boston.)
Accepting all of these payments imposes costs on merchants. A
May 2008 report by the General Accounting Office (GAO) explained
the system of "interchange fees" in which the merchant's bank
pays an "interchange fee" to the cardholder's bank when the
payment is made by credit or debit card, and stated:
The majority of the costs associated with accepting cards are
the "merchant discount fees" paid to the banks that merchants
use to process their transactions. Generally, for each Visa
or MasterCard transaction, a portion of the merchant discount
fee is paid from the merchant's bank-called the acquiring
bank-to the bank that issued the card. This portion, called
(more)
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the interchange fee, reimburses card issuers for a portion of
the costs they incur in providing card services. The balance
of the merchant discount fee is retained by the acquiring bank
to cover its costs of providing services. . . . Interchange
fee amounts are calculated using rates, typically between 1
and 2 percent of a purchase's value [or they can be a flat
rate]. (GAO, "Credit and Debit Cards," GAO-08-558, May 2008.)
Under California law, retailers are prohibited from imposing a
surcharge on a consumer who uses a credit card to make a
purchase. This provision was added to the Song-Beverly Credit
Card Act in 1985 by SB 848 (Rosenthal, Ch. 913, Stats. 1985).
This bill would extend these surcharge protections to debit
cards.
CHANGES TO EXISTING LAW
1.Existing law prohibits retailers from imposing a surcharge on
a cardholder who uses a credit card. Existing law permits a
retailer to offer a discount for the purpose of inducing
payment by means other than a credit card as long as the
discount is offered to all prospective buyers. (Civ. Code
Sec. 1748.1(a).)
Existing law provides that any retailer who willfully violates
these provisions and fails to pay the amount of the surcharge
back to the cardholder, after the cardholder's written request
to do so, is liable to the cardholder for three times the
amount of actual damages and reasonable attorney's fees and
costs. (Civ. Code Sec. 1748.1(b).)
This bill would apply all of the above-described provisions to
debit card purchases.
2.Existing state law limits a debit cardholder's liability for
unauthorized use of a debit card. (Civ. Code Sec. 1748.31.)
This bill would revise the definition of "debit card" to also
include a prepaid card or other means of access to prepaid
funds that may be used for electronic funds transfers and may
be used without a personal identification number (PIN) to
access the funds.
COMMENT
1. Stated need for the bill
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In support of the bill, the author writes:
SB 933 prohibits retailers from imposing a surcharge on
consumers who elect to use their debit card when making a
purchase. Current law prohibits retailers from imposing a
surcharge on consumers who use their credit card; SB 933 seeks
to provide the same consumer protection enjoyed by those who
use their debit cards. Presently and without SB 933, a
consumer who elects to pay with their debit card can actually
pay more than somebody who uses their credit card.
Furthermore, debit card usage has increased exponentially over
the years as we continue to move to an increasingly cashless
society. Since 2005, more than half of total retail
transactions nationwide have been made with either a credit
card or debit card. Since 2006, more purchases have been
made, in terms of volume, with debit cards than credit cards.
The California Employment Development Department is currently
considering issuing unemployment insurance payments through
prepaid cards. Without the protection provided under SB 933,
those receiving unemployment benefits could be charged a
surcharge by retailers on their newly issued EDD unemployment
prepaid card.
Lastly, many prepaid card products are being used by younger
consumers, underbanked, or unbanked consumers who do not use
or have bank accounts, consumers are obtaining their pay
through payroll cards or government issued benefits on prepaid
cards. The prepaid cardholding population is expected to
increase even more rapidly; thus making it important to
include prepaid cards within the surcharge prohibition.
2. Extending surcharge protections of Song-Beverly Credit Card
Act to debit cards
Under Song-Beverly, retailers may not impose a surcharge when a
consumer decides to pay for his or her purchase using a credit
card. This bill would add Civil Code Section 1748.33 to the
provisions of law relating to debit cards. That new section
would extend the same surcharge protections as contained in
Song-Beverly to debit card users. While these provisions would
prohibit a retailer from imposing a surcharge when a consumer
uses a debit card to make a purchase, they would not prohibit
the retailer from offering a discount in order to induce payment
by means other than a debit card, as long as the discount is
offered to all prospective buyers.
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Consumers Union, in support of this bill, writes that
"[c]onsumers should not be penalized for choosing to use 'pay
now' payment methods instead of paying later by using their
credit cards, which may lead to only growing personal and
household debt. . . . numerous studies have shown the use of
debit is rising at a rapid pace."
3. Revising definition of "debit card"
This bill would include prepaid cards in existing law's
definition of "debit card" so that those cards would also get
the protection of existing law and this bill. With respect to
debit cards, existing law provides that when there is an
unauthorized use of a debit card the cardholder is only liable
for $50 as long as the cardholder notifies the issuer that an
unauthorized use has occurred or may occur because the card was
lost or stolen within specified timeframes. By including
prepaid cards in the definition of "debit card," this bill would
extend these provisions to prepaid cards. It would also extend
the protections of this bill's surcharge prohibition to prepaid
cards.
The use of prepaid debit cards has also been increasing. Those
cards are reloadable and allow the cardholder to add funds to
the card. According to a New York Times article, prepaid cards
are most often used by consumers who do not have a bank account
or cannot get a credit card. ("Prepaid, but Not Prepared for
Debit Card Fees," New York Times, October 6, 2009.) Many
government agencies and companies are beginning to use prepaid
cards instead of paper checks. For example, retirees without
bank accounts can get their Social Security payments on a
prepaid debit card. According to the author, the Employment
Development Department (EDD) is planning on issuing unemployment
benefit payments on prepaid debit cards. This bill is intended
to ensure that Californians who use this form of payment receive
the debit card protections contained in existing law as well as
the debit card surcharge protections proposed by this bill.
4. Remedies available
Song-Beverly's prohibition on the imposition of a surcharge for
credit card purchases may be enforced by a consumer in small
claims court, if it does not exceed the jurisdiction of that
court, or in any other appropriate court. Express statutory
authorization is not necessary, however, to bring an action in
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small claims court or in any other appropriate court. Rather,
actions may be brought in small claims court if they meet the
jurisdictional limits. Including express statutory
authorization creates the implication that a claim may not be
brought to enforce a statute if the statute does not contain
that authorization.
At the request of the Judicial Council, the author deleted this
provision because it has the potential to create confusion. It
is important to note, however, that this deletion is not
intended to be interpreted as removing the ability to bring an
action in small claims court, or in any other appropriate court,
for enforcement of this bill. In order to make this clear, the
Committee may wish to amend the bill to include uncodified
intent language stating this fact. The following language would
accomplish this:
Suggested amendment : Add uncodified intent language providing
that the deletion of the small claims language is not intended
to be interpreted as removing the ability to bring an action
in small claims court, or in any other appropriate court, for
enforcement of this bill.
5. Opposition
BP America writes in opposition:
. . . by prohibiting retailers from imposing a surcharge on
consumers that use debit cards, the bill would require ARCO
dealers and franchisees to incur the cost of interchange fees
that are imposed by credit card companies and payment
networks, thereby increasing the cost on ARCO consumers who
purchase other goods and services at our stations. Indeed, SB
933 would ultimately hurt ARCO and ampm consumers because ARCO
dealers and franchisees would be prevented from passing some
of the cost of the interchange fee to consumers. By stopping
this practice, our dealers and franchisees would be unable to
reduce the risk of the escalating cost of interchange fees
while continuing to offer gasoline at a lower price.
The California Retailers Association (CRA) also opposes the
bill, writing that "[v]ery few retailers charge customers for
debit transactions even though we incur fees on every card
transaction. Those that impose a charge are smaller merchants
or retailers who are recognized for offering low price products
or services. If those retailers are prohibited from imposing
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debit card surcharges, they will ultimately be forced to raise
their prices which will have a negative impact on all
customers-not just those paying with debit cards."
CRA also states that it would not oppose the bill if it
"mandated disclosure of any surcharge on debit transactions and
required an opt-out for consumers that elect not to pay the
additional cost." The author is not supportive of taking this
amendment, arguing the proposed amendment does not sufficiently
protect consumers.
Support : AARP; California Labor Federation, AFL-CIO; Center for
Responsible Lending, City of Lakewood; Coalition of California
Welfare Rights Organizations, Inc.; Consumer Action; Consumer
Federation of California; Greenlining Institute; National
Employment Law Project; San Francisco Chamber of Commerce; San
Jose Silicon Valley Chamber of Commerce; Visa Inc.
Opposition : BP America, Inc.; California Grocers Association;
California Retailers Association; National Federation of
Independent Business
HISTORY
Source : Consumers Union
Related Pending Legislation : None Known
Prior Legislation : SB 848 (Rosenthal, Ch. 913, Stats. 1985)
(See Background.)
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