Lawmakers question switch to microchip credit cards

Getty Images

Lawmakers are concerned that financial institutions are rushing a transition to microchip-enabled credit cards, hurting businesses and consumers in the process.

The House Small Businesses Committee on Wednesday heard from financial institutions about how a switch to chip-enabled, or EMV, cards is affecting retailers.

The meeting came a week after an Oct. 1 deadline where merchants who had not upgraded their technology to accept these EMV cards became responsible for covering the cost of fraudulent transactions.

ADVERTISEMENT
“This is a transition motivated by the private sector, not by any government regulation,” said Committee Chairman Steve Chabot (R-Ohio). “And this committee concerns itself with one thing, and that is the impact of this transition on small businesses.”

Committee members said there are still credit card companies that have not issued new cards to customers, as well as small businesses that are worried about the cost of implementing the new technology.

“This poses significant challenges to sorting out liability issues in the case of cyber theft,” Chabot said.

Financial institutions argue the move will dramatically reduce credit fraud and help thwart hackers. But retailers claim they have not had enough time to adopt the new technology. They also claim that by the time they upgrade, there will be newer technologies to prevent credit card fraud, forcing businesses to spend even more money.

“While EMV is a step in the right direction that will lead to greater economic efficiency, implementation has been slow on both sides of the equation,” said Rep. Nydia Velazquez (D-N.Y.), the committee’s top Democrat. “Many financial institutions and even more merchants are not yet in compliance. The main barriers have been a lack of awareness in the small business community, high costs to upgrade and disagreements over verification methods.”

Stephanie Ericksen, Visa’s vice president of Risk Products, said Visa is currently on a 20-city “road tour” in an effort to help business owners understand the importance of chip card technology and how they can make the switch.

But Rep. Janice Hahn (D-Calif.) said she did an “informal survey” of her Los Angeles district and not many small businesses knew of the Oct. 1 deadline.

“It doesn’t seem like a lot of cities to me,” she said about Visa’s road tour.

Rep. Brenda Lawrence (D-Mich.) said she was “encouraged” to know that Visa was going to continue their educational programs.

“It’s good to know that providers are also doing some outreach to the small businesses,” she said. “One of the challenges to small businesses is the access to information and education and so any way we could enhance that ... I would encourage it.”

The U.S. is behind much of the world on credit card technology.

Approximately 95 percent of payment terminals in Europe already accept chip cards, with Canada, Latin America and the Caribbean not far behind at 80 percent, according to data from the Smart Card Alliance. In the U.S., just over 50 percent of payment terminals are chip-ready this year, according to Aite Group.

Many have blamed this significant gap for the large number of data breaches across the U.S. in recent years. In 2013, a breach at Target exposed 40 million credit card numbers. In 2014, a hack at Home Depot compromised 56 million people’s data.

“EMV is not hack-proof, but it is far safer than the magnetic strip status quo,” Velazquez said.

Jan Roche, a member of the board of directors of the National Association of Federal Credit Unions, encouraged committee members to pass the Data Security Act, one of several similar House bills that would set nationwide data security standards.

But none of the current legislation includes specifics about chip-enabled cards. The bills are more focused on ensuring companies have a modern security plan in place to protect customer data.

The committee said they would hold another hearing later this year to hear directly from retailers on how Congress can help with the technology transition.