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CUNA Interchange income pays for card security
WASHINGTON (5/13/11)--In the aftermath of Michaels stores recent consumer data breach, the Credit Union National Association (CUNA) again reminded legislators that it is interchange fees that allow credit unions to cover the costs of dealing with these sorts of mercantile mistakes. The letter was sent to Senators Jon Tester (D-Mont.) and Bob Corker (R-Tenn.), the two original cosponsors of Senate legislation that would delay interchange fee cap implementation by two years. The Fed interchange fee cap regulations would become law on July 21, absent a delay. While a final version of the interchange cap regulations has not yet been issued, it is expected to be released before July 21. Michaels, a nationwide big-box craft store, this week notified customers of data breaches that occurred in 20 states. CUNA noted that while customers will likely have their debit cards reissued, at no cost, as a result, credit unions and other financial institutions, and not the retailer, will pay for the new cards. “What makes it possible for card issuers to cover this cost – as well as the cost of any fraudulent transactions which may occur as a result of the breach – is the interchange revenue merchants pay card issuers as their fair share of the cost of the payments system,” CUNA said. If the Federal Reserve’s proposed interchange fee cap becomes effective as scheduled, consumers will “face new or additional fees to use their debit cards and their personal data will continue to be lost by merchants who bear no responsibility to reimburse those impacted by their data breaches,” CUNA added. The CUNA letter said that the proposed delay will give legislators and regulators the time needed to study the impact of the interchange fee cap on consumers, debit card issuers and merchants, and for Congress to address potential changes to the law as a result of this study. The Conference of State Bank Supervisors (CSBS) and the National Association of State Credit Union Supervisors (NASCUS) also spoke up in support of this delay in their own letter to Congress. The regulators said that the potential economic impact of the cap, along with safety and soundness concerns, were reasons to delay implementation. Placing an artificial limit on interchange fees will “incentivize further consolidation among debit card issuers and potentially drive bank customers and credit union members to alternative products outside of the banking system.” This action could also force credit unions and banks to stop issuing debit cards, as “their costs do not utilize the same economies of scale as larger financial institutions,” the letter added. For the full CUNA letter and the joint NASCUS/CSBS letter, use the resource links.
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