Nov. 16, 2007 at 9:00 AM ET
Heidi Hansen, a U.S. Bank customer for nearly 10 years, had never seen anything like it. Her October bank statement contained a long string of unexpected 25 cent charges. Next to each was this confusing explanation:
"Purch Made With PIN - Fee."
Hansen, a 27-year-old Colorado resident, figured out what was going on pretty quickly. She was being charged extra for using her ATM card and PIN code to buy things at retail stores.
Hansen was not amused, and dashed off a hasty note to U.S. Bank.
"I never saw any documentation that you were beginning to charge a penalty for using your PIN," she wrote. "This is a ridiculous charge and I would like these taken off of my account! This is a disgusting example of big banks adding fees and you should be ashamed doing this to loyal customers!"
U.S. Bank confirmed that it does charge 25 cents to some checking account customers who enter a PIN instead of signing a receipt when making a purchase. Only unlucky account holders in Colorado, Indiana, Kentucky and Ohio are charged for using a PIN code, said spokeswoman Jennifer Wendt.
As you've probably guessed, more than a few quarters are at stake.
Not long ago, I wrote a column explaining the difference between credit and debit, advising consumers to put the cash cards away and always use old-fashioned credit cards when shopping. Unexpected fees for PIN-based debit card transactions are just another reason to do that.
Less security, but more profit
The answer is simple: easy money.
First, let me explain the terms. "Debit or credit" is a misleading question. While all the plastic in your wallet looks the same, most of us carry around three different ways to pay: a regular credit card, a bank/ATM/debit/cash card that can be used with a PIN code to buy things at retail stores (PIN-debit transactions) and a bank/ATM/debit/cash card that can be used with a signed slip to buy things (signature debit). It's the last two we're concerned with here.
Why would banks impose PIN-code fees? After all, PIN-based transactions are more secure than the signature-based form, as the 4-digit code provides another layer of verification that the true cardholder is using the card. U.S. Bank isn't the only bank that charges some consumers to make PIN-debit purchases. Wells Fargo charges a static $1 monthly fee to PIN-debit users. If it seems like these banks are pushing customers to sign receipts rather than enter PINs, well they are. That's because they stand to rake in more money from signature debit -- up to seven times more.
Remember that banks skim a bit off the top for every transaction paid with plastic. Numbers are hard to come by, but here's an example: Gartner's Avivah Litan says a bank will take in perhaps 20 cents from a merchant for a $100 PIN-debit purchase, but $1.48 for a signature debit purchase in the same amount. In general, banks can make up to 50 cents on PIN transactions, with the fee capped. But banks can rake in up to 2 percent of signature-based transactions, a potentially huge haul.
So Heidi is paying a quarter for each purchase because U.S. Bank really wants a bigger cut of her purchases, an explanation that left her unsatisfied.
'What ... is the point of a debit card'?
"What exactly is the point of a debit card if this is what they are doing?" she said. "No one is going to use it as a debit anymore if they have to pay a quarter each time to do so."
It's still a mystery why the fees only appeared only recently on her statements; U.S. Bank couldn't answer that question. But Wendt, the bank spokeswoman, said the decision to levy the fee in four states was "market driven," because other banks in those states charge PIN fees too.
Lisa Westermann, assistant vice president of Wells Fargo, said PIN fees were assessed on "a very limited number of customers ... depending on account type and applicable waivers." There is nothing geographic about Wells Fargo PIN fees, she said.
Greg McBride, an analyst who monitors bank fees at BankRate.com, says PIN fees were common five to 10 years ago, but have actually been waning of late. In a survey earlier this year, only seven of 100 banks charged PIN fees, he said. Banks now prefer the carrot to the stick when steering consumers to use signature debit, he said.
Most banks prefer incentives to penalties
"Now the more frequent way you are seeing that incentive is through debit card reward programs," he said. Banks give airline miles for signature-debit purchases, but not PIN-debit transactions, for example.
Litan said it's disingenuous of banks to work this hard so consumers don't use PINs.
"The fact that banks are actively promoting signatures over PINs proves they are much more interested in revenue than security," she said.
As for Hansen, U.S. Bank lost about $5 in revenue by picking on the wrong customer. Her e-mail got instant results, and the PIN fees were refunded. Going forward, however, she feels like she can't use her debit card any more, and she's considering switching banks.
"I've been with U.S. Bank for years and am deeply entrenched with checking, savings, reserve line, direct deposit, automatic withdrawals and bill pay, but this sneaky little fee might just make me angry enough to uproot and change banks," she said. "I wonder if their other customers are as annoyed as I am."
Perhaps. Or perhaps they aren't noticing those quarter-sized nicks on their monthly statements.
RED TAPE WRESTLING TIPS
•The PIN fees might seem small, but consumers can run up quite a bill using their debit cards, McBride said. The first piece of advice: Watch banks like a hawk.
"People who use debit cards don't just use them sporadically they use them religiously," he said. "The (fee) may be small but it can add up over the course of weeks and months. All the more reason to carefully check your statement each month."
•The second piece of advice: Only use a cash card to get cash. Use credit cards to buy things. For my argument (and much disagreement from readers) see my previous column.