May 18, 2011
Durbin’s opponents are pointing to the recent debit security lapse at arts-and-crafts chain Michaels as yet another reason why the Federal Reserve’s proposed debit card regulations should not be enacted, according to the Wall Street Journal.
“Michaels… this month said thieves had collected customer debit-card data by altering the devices that they use to swipe their cards,” reports the newspaper. “The thieves stole personal-identification numbers, created duplicate cards and withdrew cash from customer bank accounts.”
Fewer than 100 customers were impacted, but Michaels did say compromised equipment was discovered at 80 stores in 20 states.
Banks, credit unions and other Durbin adversaries argue debit interchange caps would prevent their institutions from collecting the revenue necessary to cover fraud costs in situations such as what happened at Michaels.
“This is a prime example of the role that debit interchange plays in ensuring the payment system operates smoothly and efficiently for consumers and financial institutions,” wrote Dan Berger, executive vice president at the National Association of Federal Credit Unions, in a letter to senators.
“[It] illustrates the point that customers who have their account information breached can get that money back from the banks because of the way the debit-card product works today,” the Wall Street Journal reports one executive at a major bank said.
The newspaper states banks plan to eliminate rewards programs and raise costs for basic consumer services in order to recover the revenue lost from interchange fees. To guard against fraud losses, some banks are also considering limiting debit card transactions to $50 or $100. The retail sector counters that banks pass along fraud protection costs to merchants.
“Their argument that they need even more swipe fees to protect the system they’re not already protecting is really just a load of bull,” said Mallory Duncan, senior vice president and general counsel for the National Retail Federation, a trade group.
Retailers also claim they have invested billions of dollars in shoring up to security and that banks are not putting in the same effort, such as in not issuing cards with computer chips that allegedly are less vulnerable to fraud than signature debit.
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