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Washington
Fed finalizes interchange fraud-prevention charge
WASHINGTON (7/30/12)--The Federal Reserve on Friday made final an interim final rule that will allow some debit card issuers to charge an extra penny per transaction in debit interchange transaction fees.

To be eligible for the extra transaction fee, financial institutions must develop and implement policies and procedures to reduce the occurrence and costs of fraudulent debit card transactions, the Fed said. These policies and procedures also will need to be reviewed annually, at minimum. The procedures may be updated from time to time, the Fed noted.

Issuers that do not comply with fraud prevention standards would not be permitted to charge the extra penny in debit interchange fees, the Fed said.

The final rule amendments will be effective on Oct. 1. Credit unions with less than $10 billion in assets will not be subject to the final rule.

The Credit Union National Association (CUNA) last year urged the Fed to allow debit card issuers to charge four to five cents per transaction to cover fraud prevention costs. That adjustment would better cover costs  incurred when financial institutions investigate the source of a data breach or theft, attempt to stop any instances of fraud, and deal with the aftermath of the theft or data breach, CUNA said. The increased fraud prevention adjustment also would help protect smaller issuers whose fraud prevention costs often represent a larger portion of their total debt card program costs, CUNA added.

CUNA also recommended that the Fed periodically revisit the fraud prevention cost issue to see if the costs have changed and whether any future adjustments are necessary.

The Fed's final interchange rule, which became effective last year, sets a debit interchange fee cap of 21 cents and allows an additional five basis points of the value of the transaction to cover fraud losses.

For the Fed release, use the resource link.
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