The Federal Reserve was sent a letter Friday signed by the majorcredit union, banking and payments trade groups asking for anincrease in fraud adjustment fees in the interchange cap rules thattake effect on Saturday.

An interim rule issued when the interchange cap of 21 cents wasapproved onJune 29 included the 1-cent provision for fraud preventioncosts and another five basis point allowance for fraud costs.

The 23-page letter distributed Friday details arguments aboutwhy the 1-cent provision currently in place is not enough citeswhat 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 ofthe fraud prevention adjustment every two years, any futureadjustment the Federal Reserve makes to this amount will beinherently prospective, and thereby fail to capture prior lostcosts.” Nor has the Fed announced any other plans to help issuerscover those costs, the letter added.

It adds, “At a minimum, we urge the Federal Reserve to surveycarefully issuers' fraud prevention costs and reconsider, withappropriate frequency, the formulation for the fraud preventionadjustment amount.”

In an e-mail, CUNA spokesman Pat Keefe said the “lettergenerally supports the interim final rule that allows large debitcard issuers that have complied with certain security measures tocharge $.01 per debit card transaction to recover a portion oftheir costs related to fraud-prevention. However, we areurging the Fed to periodically reexamine the amount of theadjustment and consider increasing it to $.04 or $.05 to moreaccurately reflect issuers' fraud-prevention costs.”

Keefe noted that, as with the interchange cap itself, theinterim final rule applies only to issuers of $10 billion or morein assets. That would include only three credit unions – NavyFederal, PenFed and North Carolina's State Employees' CU.

Representatives of community banks and credit unions haveexpressed doubts about the two-tiered system and CUNA itself onFriday announced that it had launched a confidential website for credit unions to report any problemswith merchants accepting their members' cards.

The Friday letter was signed by the presidents, CEOs andchairmen of CUNA, NAFCU, the ABA, The Clearing House Association,The Clearing House Payments Co., the Consumers Banking Association,the Financial Services Roundtable, the Independent CommunityBankers of America, the Midsize Bank Coalition of America, and theNational Bankers Association.