WSJ: Banks/Merchants Re-Load for Fee Battle Posted by AVCU on 2:50 PM

Today's Wall Street Journal features yet another article on the upcoming Durbin debit interchange cap proposed by the Federal Reserve. This time, however, they cite the recent large-scale and highly publicized Michael's data breach as the cause of renewed attention by members of Congress. 


Michaels, an Irving, Texas, chain of arts-and-crafts stores, recently reported that thieves had collected customer debit-card data by altering the devices the store uses to swipe cards. The thieves stole personal-identification numbers, created duplicate cards and withdrew cash from customer bank accounts. Though Michaels said fewer than 100 customers have reported fraudulent transactions, the company found equipment had been compromised at 80 stores in 20 states. The situation at Michaels just "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," said one bank executive. Fraud costs won't go away when the Fed caps swipe fees so they'll find other ways to address those costs, such as raising fees and eliminating rewards. Some may protect themselves from fraud losses by capping debit-card transactions at $50 or $100.


Merchants, on the other hand, claim that they are already being made to cover the cost of fraud incidents. Retailers also say they've invested billions to plug security holes, but card issuers are refusing to take a step to make the entire system far safer: issuing cards embedded with computer chips, which retailers claim are less vulnerable to fraud than debit cards that require a signature. 


AVCU thoughts - Last time we heard, chip cards haven't caught on in the U.S. as in other countries because of the massive infrastructure change merchants would have to undergo to accept such cards.


Lobbyists say a delay-bill written by Sen. Jon Tester (D., Mont.) is close to having enough votes, but that he may need to scale it down from a two-year delay to a one-year delay to get it over the 60-vote threshold.


Read the WSJ article here.