Chairman D'Amato and Members of the Committee, my name is Henry Mundt. I am President and CEO of Cirrus System, Inc. ("Cirrus"), which operates the MasterCard/Cirrus ATM Network. I appreciate the opportunity to appear today before the Committee on Banking, Housing, and Urban Affairs, United States Senate, to discuss Cirrus' role in the electronic payments 'industry and the decision to lift our prohibition against ATM access charges. We are aware that with the introduction of S. 885, the "Fair ATM Fees for Consumers Act," the Chairman has expressed concerns relating to the costs of ATM access charges and is seeking data relating to such costs. As will be discussed below, however, Cirrus' role is limited to providing the network through which member financial institutions provide ATM services throughout the country. The system does not have any direct relationships with consumers, does not issue ATM cards to consumers, and has no involvement in the decision by its members whether to impose ATM access fees. Any fees imposed on consumers 'in connection with ATM services are determined and imposed by financial institutions participating in the network, not by Cirrus.
While MasterCard is well-known primarily as a credit card and debit card brand and Cirrus as an ATM access mark, what may be less well known is that neither MasterCard nor Cirrus actually issue cards to consumers or operate ATMs. Rather, MasterCard and Cirrus simply license the use of their service marks to their member financial institutions. It is our members that issue cards and operate the ATMs at which those cards may be used to get cash.
Cirrus also operates a processing facility that enables cards issued by one of our member financial institutions to be accepted at ATMs of other members around the world. The vast majority of these transactions are authorized and settled electronically in seconds -- even though the cardholder may be requesting cash at an ATM thousands of miles from home. Cirrus competes with many other ATM networks. Many offer their services on a state or regional basis only. Others, like Cirrus, offer them nationally and internationally.
Most ATMs in the United States are connected to one or more regional ATM networks, as well as to one or more of the global ATM networks like the MasterCard/Cirrus ATM Network. VISA, American Express, and Discover also operate ATM networks, in which many of our members participate. It is our members, 'in turn, that compete for and maintain consumer deposit relationships and operate ATMs. Of course, each member establishes its own prices for its services. As a result, consumers 'in the United States have a wide range of choices and may use their ATM cards to get cash -- almost instantaneously -- at virtually any of the hundreds of thousands of ATMs located across the country and around the world.
We believe that this system works well for our members, and our members' cardholders. Most importantly, it provides extraordinary conveniences to consumers that were largely unavailable as recently as two decades ago. Prior to the widespread deployment of ATM terminals, consumers generally had to be physically present at a bank to gain access to their funds. Obtaining these services often was time consuming and consumers had to conduct their business in accordance with the banks' limited hours of operation. Obviously, this has changed dramatically as a result of ATMs. Consumers now are able to have instant access to their funds worldwide. Consumers also are able to take advantage of a wide variety of other services through ATMs -- consumers can make deposits, receive account balances and transfer funds from one account to another. Moreover, as additional ATM features are brought on line, the convenience and value of ATMs to consumers will continue to grow.
We are proud of the fact that the MasterCard/Cirrus ATM Network, with over 325,000 ATMs worldwide, is the largest in the world. In order to create such widespread acceptance of its cards at so many ATMs around the world, Cirrus has had to adopt ATM policies and rules that best meet the needs of its members and their cardholders. Since the ATM needs of its members and their cardholders are constantly changing, Cirrus' ATM rules and policies have had to evolve. For example, when Cirrus was first established, it decided that the best way to promote its services was to prohibit its members from imposing a charge on other members' cardholders for accessing their ATMs. However, the ATM industry has changed in a number of crucial ways since the days that the Cirrus ATM network was established. One of the most significant changes 'involves state regulation of network ATM access charge policies. Another involves the evolution of the ATM business.
Beginning with Nevada in 1990, fifteen states passed laws or issued regulatory rulings that prevented ATM networks -- including Cirrus -- from enforcing their "no ATM access charge" policies in those states. These states are Alabama, Arkansas, Georgia, Idaho, Louisiana, Maine, Mississippi, Montana, Nevada, New Mexico, North Dakota, South Dakota, Texas, Utah, and Wyoming. (Nevada's statute was upheld by the U.S. Court of Appeals for the Ninth Circuit in Valley Bank of Nevada v. Plus System, Inc., 914 F.2d II 86 (1990)). Moreover, many other states at one time or another have considered passing similar laws. As a consequence, Cirrus was faced with the choice of withdraw' from those states or of permitting its members 'in those states to impose ATM access charges. Since ATM acceptance is so important to consumers and is therefore critical to the success of our global ATM services, the new state laws gave us little choice but to acquiesce and permit our members in those states to impose ATM access charges.
In addition to state intervention, the ATM business has evolved, from one in which most ATM operators were banks providing cash access to their depositors at ATMs in or near bank branches, to one in which cash access and other ATM services are offered as products in their own right. Many ATM operators argue they need the flexibility to charge for the expanded range of services, higher quality of service, and greater degree of access that customers increasingly demand.
As a consequence of state intervention and the evolution of the ATM business, many ATM operators in states which had not yet enacted legislation expressed their intention to impose ATM access charges and were successful in obtaining this flexibility from a growing number of ATM networks. As a result, Cirrus had to reevaluate its prohibition against ATM access charges. Failure to do so would have resulted -- we believe -- 'in a significant number of ATM operators withdrawing from our ATM network, with a concomitant loss of service and acceptance to our remaining members' cardholders. In a business as competitive as the ATM business, we could not let that happen. Thus, Cirrus amended its Operating Rules to eliminate the prohibition against ATM access charges. However, even in doing so, Cirrus took steps to ensure that its members' cardholders would be fully informed of the existence and amount of any ATM access charges, and could avoid paying those charges by canceling the transaction.
Specifically, the Cirrus Operating Rules provide that if a member ATM owner imposes an access charge, it must comply with the following disclosure and consumer choice requirements:
The Rule is designed to provide the cardholder with a clear and conspicuous disclosure so that the cardholder is fully informed of any ATM access charge before that charge is assessed. In addition, by providing the cardholder with an unconditional right to cancel a transaction without any charge, the Rule clearly places in the hands of the cardholder the power to choose whether or not to pay the disclosed ATM access charge. We believe that by ensuring that consumers have the power to make this choice, we will continue to protect the value of the Cirrus brand to Cirrus cardholders. That value clearly would be diminished if the number of ATMs accepting Cirrus cards decreased as a result of attempts by Cirrus to continue to prohibit ATM access charges.
By providing Cirrus cardholders with full disclosure of any ATM access charge that might be imposed and the option not to pay it, the Cirrus Operating Rule also promotes competition among ATM operators. ATM operators compete vigorously to promote use of their terminals. They also compete with other payment methods. By ensuring that consumers know 'in advance about ATM access charges, and about their ability to avoid such charges, consumers are able to comparison shop among different ATM providers and the other means of obtaining cash and/or making payments. If the ATM access charges of a particular ATM operator are too high, consumers will select other ATMs or other payment alternatives. We believe that this free market approach to ATM access charge pricing will ultimately afford consumers the widest availability of ATMs and ATM services.
The disclosures required by our Rule have become standardized in the industry. Changes in this approach by any ATM network simply cannot be made without impacting every ATM that operates in that network and virtually every other ATM network in the country creating likely confusion among consumers and bank customers.
The Electronic Fund Transfer Act ("EFTA"), as implemented by Federal Reserve Board Regulation E, requires ATM access charge disclosures on or at the terminal and on the ATM terminal receipt. In addition, under the EFTA, financial institutions also must disclose fees that might be charged by the financial institution holding the consumer's account before the consumer ever uses the account. Furthermore, if the consumer incurs such a fee, the financial institution must disclose that fee again on the periodic statement sent to the consumer as required under the EFTA. In short, the EFTA, the Cirrus Operating Rule on ATM access charges, and industry practice protect consumers by informing them of any ATM access charge imposed and enabling the consumer to decide whether to pay the charge. We believe that any additional legislation in this area is unnecessary.
In particular, imposing pricing restrictions on the electronic fund transfer ("EFT") market, such as the restriction proposed 'in S. 885, the "Fair ATM Fees for Consumers Act," would be unwarranted. Competition in the EFT industry is extremely intense, with thousands of financial institutions and terminal operators competing against one another, and multiple networks competing against one another for financial institutions to participate in their systems. We believe that this competitive marketplace should determine how EFT services are priced.
Once again, I want to thank you for the opportunity to appear before you today.
Please let us know if we can be of any further assistance to the Committee or its staff.
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