Debit Fraud and InterchangeSenate Proposal Heats Debate Over Fee Reduction
The proposal introduced by Sen. Jon Tester, D-Mont., better known as the Tester bill [S. 575], calls for a two-year review of the impact a debit interchange reduction could have on the economy. If passed, Tester's amendment would negate or significantly cripple debit interchange fee reductions included in a separate amendment attached to the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The Dodd-Frank amendment - better known as the Durbin amendment, the controversial proposal introduced by Sen. Dick Durbin, D-Ill. - calls for the Federal Reserve to significantly cut interchange fees card-issuing banks and credit unions collect on debit transactions.
Durbin opponents say a reduction in debit interchange would adversely affect debit and ATM offers banks and credit unions provide their customers and members. Durbin supporters, namely retailers, say the amendment would fuel the economy and enhance debit's use, since fee reductions would benefit consumers and retailers alike.
On Wednesday, Sen. Tester defended his proposal before the Senate, saying the financial industry needs more time to study the long-term implications of an interchange fee cap on the economy.
Mike Urban, senior director of fraud product management at FICO, says Tester's legislation and its two-year review period could be a catalyst for positive changes to the Durbin amendment. "With both sides of the aisle looking at the amendment, and with all of the questions that have come out from the House and the Senate about the bill, I think any additional time would be worthwhile," Urban says.
Durbin's Fraud ConnectionThe Durbin amendment is the only portion of Dodd-Frank that directly touches fraud concerns. The legislation proposes institutions charge fees to cover their fraud prevention investments. But the allowed amount does not come close to covering the expense for banks, experts say.
One banker, who asked not to be named, says: "Durbin, as it stands today, is very poor for the payments industry and the consumer, because it would lend itself to reducing fraud prevention and detection." [See The Durbin Amendment and Fraud.]
On Wednesday, the National Association of Federal Credit Unions issued a statement in response to Tester's defense of delaying an interchange-fee reduction, saying recent incidents, such as the Michaels breach, prove the industry cannot afford to cut fraud-prevention investments.
"We believe delaying a rule from going into effect is especially warranted given the numerous factors that were not taken into consideration as part of the rule-making process," states NAFCU President Fred Becker. "In light of the recent Michaels and Sony data breaches, it is all the more important to include fraud losses and data security concerns in the drafting of any regulation limiting interchange fees."
The National Retail Federation says bankers' attempts to tie fraud concerns to Durbin's amendment are misguided. On Wednesday, the NRF said it plans to launch two months of lobbying and advertising to ensure Durbin's interchange reduction is not delayed. If the Durbin reduction is approved, the fee reduction would take effect this summer.