Banking Law

If a bank is going to try sending a "tricky" notice to customers that can be logically interpreted as trying to get them to do something that will line the bank's pockets while emptying the customers' pockets, the last thing the bank wants to do is send the solicitation to a customer who is a colleague of a reporter for the American Banker. Unfortunately for JPMorgan Chase, that's exactly what happened.

JP Morgan Chase mailed notices to former Washington Mutual customers who were being issued Chase-branded debit cards in which Chase strongly suggested that the customers "always select 'credit'" when paying with their debit card.

"We know it's confusing," JPMorgan Chase wrote in a box highlighted as being "important."

"It's not a credit card, so the money still comes out of your checking account. But by choosing 'credit,' you won't have to enter your PIN in public."

That sounds like Chase is doing a good deed for the customers, doesn't it, warning them of the "safer way" to use the debit card? The problem is that experts disagree.

The problem, security experts said, is that PIN debit transactions are actually much more secure than signature debit purchases.

Signature debit is considerably more lucrative for a debit card issuer, however.

[...]

[S]everal security experts, when read the Chase letter by a reporter, said the company had implied that it's safer to use a signature when paying with a debit card ? which the experts said is not so.

"From a technical security standpoint, there's no question about it, a PIN adds a level of safety, which is why ATM transactions have required a PIN for years," said Avivah Litan, a security analyst at Gartner Inc.

But banks do collect higher interchange fees from merchants on signature debit transactions.

"PIN is actually more secure, but PIN does not generate as much revenue to the bank," said Adil Moussa, an analyst at Aite Group in Boston. "If they get you to use signature debit, then they are going to make much more money."

On a $100 transaction, for example, it's the difference between making 5 cents to 10 cents versus $1, Moussa said.

A spokesperson for Chase said the supposed purpose of the notice is simply to "reassure customers of the security and safety of using their debit cards." The sounds of explosive laughter were immediately heard throughout many corners of the banking world, including within this small rabbit warren.

Chase is likely to dodge any legally supportable claim that the notice is deceptive, notwithstanding that those in the know claim that it smells worse than roadkill on an Amarillo highway at noon in mid-August.

JPMorgan Chase is factually correct in stating that a consumer won't have to enter his or her PIN in public if "credit" is chosen at the time of checkout.

But "if you're not going to use your PIN in public, where are you going to use it?" asked J. Craig Shearman, vice president for government relations at the National Retail Federation.

As many banks (and other businesses) have discovered, just because marketing material passes your lawyer's eagle eye without changes doesn't mean that, from a public relations standpoint, it's not going to come back and leave teeth marks on your corporate hide.

How did this attempt to do what big banks do every day to consumers throughout the land I like to call "America the Beautiful" (usually without the benefit of Vaseline, dinner, or a movie) land on the front page of one banking's major trade dailies (which story is now outside the American Banker's subscription-only firewall)? According to Christopher Wood, Online Editor of SourceMedia (the publisher of the American Banker), a colleague of reporter Sara Lepro received the notice and put her on the case. Obviously, Sara's the kind of reporter who digs deep.

Bad luck for Chase. Good luck for those of us who enjoy this kind of exposure of too-big-to-fail marketing tactics that most generously could be described as "unwise."