FCAC's 2007 Debit Card Code of Practice - Consumer Research

This report was commissioned by FCAC

Introduction

Executive Summary

Introduction

The Financial Consumer Agency of Canada (FCAC) is an independent government agency created by the Government of Canada in October 2001. As part of its mandate, FCAC monitors voluntary industry codes of conduct and works to ensure that financial institutions comply with the consumer provisions applicable to them. FCAC also works with consumers, providing them with information about their rights and responsibilities pertaining to financial products and services.

As an increasingly popular medium of exchange, debit cards are an important financial product and service for which FCAC provides oversight. One of the key mechanisms through which FCAC provides this is through the Canadian Code of Practice for Consumer Debit Card Services: a voluntary code of conduct that outlines industry practices and consumer and industry responsibilities with regard to the use of debit cards and personal identification numbers (PINs). The Code was developed in 1992 through consultations with financial institutions, consumer organizations, retailers and federal provincial governments. It has since been amended in 1996, 2002 and 2004. The Code applies to the use of debit cards and PINs at points-of-service (POS) terminals in Canada, which include automated banking machines (ABMs).

The continually expanding use of debit cards highlights the importance of reviewing the ongoing relevance and effectiveness of the Code to ensure consumer protection. Towards this end, FCAC identified a need for a review of consumer knowledge and practices related to debit card use and PINs. Environics Research Group was commissioned to conduct this research, and is pleased to provide FCAC with this report on the findings.

Objectives of this research included:

• Gaining an understanding of how Canadians use their debit cards,
  
  
• Determining the extent to which Canadians are informed by their financial institutions about security issues around debit cards,
  
  
• Assessing card holders' knowledge of their rights, responsibilities and liabilities as they relate to the Code, including:
  
  
  • the importance of ensuring the security of their card and PIN
    
    
  • the criteria for the selection of a PIN
    
    
  • their responsibilities and liabilities with respect to the loss of their debit card
    
    
  • liability for unauthorized use, and the dispute resolution process detailed under the Code
    
    
• Documenting cardholder experiences with debit card problems and the complaint process.
  
  

The research underlying this report includes a national telephone survey that was conducted with 1,600 Canadian debit card holders, and a series of six focus groups conducted in Toronto, Montreal and Vancouver. The focus groups provided an opportunity to follow-up and further explore certain findings from the survey. The use of these complementary research methods provides a more complete assessment of the state of Canadians' knowledge and practices than either approach can provide separately.

The report begins with an executive summary of the key findings and conclusions from both the qualitative and quantitative research.

Executive Summary

This report presents the results from a national telephone survey conducted among 1,600 Canadian debit card holders, and a series of six focus groups conducted in Toronto, Montreal and Vancouver to follow-up and further explore certain findings from the survey.

The following are the key findings of the research.

Characteristics of debit card holders

• Most debit card holders received their last debit card more than three years ago, and most report holding only one debit card.
  
  
• Card holders report using their debit cards frequently, and for a range of transactions. Point-of-sale purchases using a debit card are the most common transaction, followed by ATM transactions at the card holder's own financial institution. Use of debit cards to withdraw money from ATMs at other financial institutions, stores and/or public places, or to get cash back from retailers is much lower (on average), and fewer than half of card holders report ever using their cards for each of these transactions. Both the survey and focus group studies reveal that age is a key determinant of debit card use, with younger card holders reporting higher levels of use over a broader range of transactions than their elders.
  
  

Perceptions/concerns about debit card safety

• Nine in ten card holders are generally satisfied with the measures that financial institutions have taken to minimize any risks associated with the use of debit cards. However, the focus group research shows that to the extent that card holders are aware of the technological safe guards put in place by financial institutions, this knowledge is generally confined to basic measures (e.g. methods to find out that unauthorized transactions have occurred).
  
  
• Both the survey and focus group research find that card holders tend to express greatest confidence (and to have the fewest specific concerns) about the safety and security of transactions conducted on ATMs owned by financial institutions and, to a lesser extent, in the use of debit cards for point-of-sale purchases. Card holders express greater unease (and more frequent specific concerns) about getting cash-back from retailers, and about using ATM terminals not owned and operated by a financial institution.
  
  

Provision of information and documentation to card holders

• Card holders are generally satisfied that their financial institution provided them with all of the information they required about what to do if their card is lost or stolen, about the purposes/functions of their card, about how to contact the card issuer if they need to, and about the fees associated with using their card.
  
  
• Both the survey and focus group research find that many card holders would like more information from their financial institutions about debit card fraud and how they can prevent it, about their responsibility for the security of their debit card, and about their liability for losses due to unauthorized use.
  
  

Awareness of rights and responsibilities

• Nearly all card holders are aware of what constitutes a proper and improper PIN, with nearly all participants in both the survey and the focus group studies aware that their own phone number or address, or their own or a family member's birth date is not a secure debit card PIN. Similarly, nearly all card holders are aware that it is not safe to keep a written copy of a PIN nearby their debit card.
  
  
• Card holders display limited knowledge about their liability for losses due to unauthorized transactions with their debit card, and many card holders are not aware that choosing an easily identifiable PIN, or divulging their PIN to others could limit their recourse to reimbursement if an unauthorized transaction were to occur on their card. Moreover, most card holders feel that any liability on their part would not include money removed from an associated line of credit (e.g. overdraft protection).
  
  

Card holder experience with debit card problems

• One in ten card holders report experiencing a problem with their debit card over the past year which led them to contact their financial institution—with a total of 4 percent reporting some experience with an unauthorized transaction due to fraud over the past year. The survey research reveals that financial institutions respond to problem reports within the required time, and both the survey and focus group research reveal a generally high level of card holder satisfaction with the way that problems are addressed (including problems related to unauthorized transactions).
  
  

Conclusions and Recommendations

For the most part Canadians are satisfied and content users of debit cards and, while they are aware of debit card fraud and some risks associated with use of a debit card, most are not overly worried about security risks related to the use of their cards.

Despite this general satisfaction, however, the research reveals evidence of consumer misunderstanding around debit card security and potential liability for losses from debit card fraud. The research points to a need for increased communications directed toward consumers in terms of the responsibilities of debit card users in terms of protecting the card and pin, and the provisions of the code of practice relating to consumer liability. This was particularly evident in the focus groups, where most participants reported not having read the information they received at the time their debit card was issued.

While consumers generally recall receiving some type of agreement when they obtained their debit card, few recall any details of this agreement. Most focus group participants' recollections of the card holder agreements they received are of dense, legalistic and impractical documents. A potentially useful recommendation in this respect is the development (and distribution to card holders) of a "tip sheet" on avoiding unauthorized transactions, liabilities in the event of fraud, consumer recourse and related matters. For those consumers who might otherwise not read through the card holder agreement with enough detail, this “tip sheet” would provide essential information that they would otherwise not receive. For many others, a condensed presentation of this sort would likely impress upon them the importance of taking the time to read and understand their card holder agreement in greater detail.

The role of the federal government (and FCAC) in consumer protection around debit cards is little understood. Public education and communication efforts concerning the role of FCAC, the debit card code of practice, and its key provisions could potentially address this issue.

This research reveals that Canadians may be overly complacent when it comes to the security of their debit cards, particularly given their degree of misunderstanding about their potential liability for losses due to unauthorized transactions. Additional efforts are required to ensure that Canadian debit card holders are informed about their responsibilities under the code and the implications of fulfilling those responsibilities.

This report was commissioned by FCAC