The Federal Reserve was sent a letter Friday signed by the major credit union, banking and payments trade groups asking for an increase in fraud adjustment fees in the interchange cap rules that take effect on Saturday.
An interim rule issued when the interchange cap of 21 cents was approved on June 29 included the 1-cent provision for fraud prevention costs and another five basis point allowance for fraud costs.
The 23-page letter distributed Friday details arguments about why the 1-cent provision currently in place is not enough cites what it said were flaws in the way the figure was calculated.
The letter says “these flaws are magnified by the fact that, although the Federal Reserve will review the appropriate amount of the fraud prevention adjustment every two years, any future adjustment the Federal Reserve makes to this amount will be inherently prospective, and thereby fail to capture prior lost costs.” Nor has the Fed announced any other plans to help issuers cover those costs, the letter added.
It adds, “At a minimum, we urge the Federal Reserve to survey carefully issuers’ fraud prevention costs and reconsider, with appropriate frequency, the formulation for the fraud prevention adjustment amount."
In an e-mail, CUNA spokesman Pat Keefe said the “letter generally supports the interim final rule that allows large debit card issuers that have complied with certain security measures to charge $.01 per debit card transaction to recover a portion of their costs related to fraud-prevention. However, we are urging the Fed to periodically reexamine the amount of the adjustment and consider increasing it to $.04 or $.05 to more accurately reflect issuers’ fraud-prevention costs.”
Keefe noted that, as with the interchange cap itself, the interim final rule applies only to issuers of $10 billion or more in assets. That would include only three credit unions – Navy Federal, PenFed and North Carolina’s State Employees’ CU.
Representatives of community banks and credit unions have expressed doubts about the two-tiered system and CUNA itself on Friday announced that it had launched a confidential website for credit unions to report any problems with merchants accepting their members’ cards.
The Friday letter was signed by the presidents, CEOs and chairmen of CUNA, NAFCU, the ABA, The Clearing House Association, The Clearing House Payments Co., the Consumers Banking Association, the Financial Services Roundtable, the Independent Community Bankers of America, the Midsize Bank Coalition of America, and the National Bankers Association.