Interchange Price Cap Rule
Fraud protection is a critical and costly aspect of debit card transactions. In fact, a recent Javelin Strategy & Research study found that while identity theft fraud declined in the last year, debit card fraud grew significantly. Debit card fraud accounted for 36% of crimes committed with cards already in circulation in 2010, up from 26% in 2009. With increasing usage of debit cards, the instances of fraud are bound to continue rising exponentially.
The skyrocketing costs in new-account fraud are also of major concern. New-account fraud was responsible for the greatest fraud amount ($17 billion). New-account fraud, in which accounts have been opened without the victim’s knowledge, is harder to detect and is the most likely to severely impact the victims.
For small financial institutions like credit unions, there are a multitude of costs associated with supporting debit card programs. For example, credit unions must issue replacement cards, work with their members to resolve any fraud issues and maintain the necessary data security measures to help prevent any new fraudulent charges in the future. Yet, the retailers have the best of both worlds. The retailers have guaranteed payment from credit unions without any added requirement for merchants to reimburse them for the expenses incurred due to data breaches or fraud even when the data breach or fraud was the fault of the merchant.
While this measure was advanced as a boon for consumers, there is no provision in this interchange price cap amendment that will guarantee retailers will pass on cost savings to consumers. In fact, a recent GAO report on credit cards found that proving any benefit to consumers from capping interchange fees was difficult as consumers would likely face higher costs in other areas.
The real winners are big box retailers, who stand to make millions. Unfortunately, the losers are your Main Street financial institutions and consumers – credit unions and their members.
Congress needs to stop this now!
Fred R. Becker is the President of the National Association of Federal Credit Unions.
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