The one-cent adjustment for fraud prevention in debit interchange fees isn't sufficient and the capped rate should be based on the actual costs for the card issuers.

Those are among the changes that NAFCU recommends in the Federal Reserve's interim rule on debit interchange rates, according to a letter the association filed with the Fed on Wednesday.

NAFCU President/CEO Fred Becker wrote that some costs associated with customer inquiries should have been included. He also asked for clarification if costs such as research and development, card activation, PIN customization and merchant blocking were included in the calculation.

On June 29, the Fed issued its rule which capped interchange fees at 21 cents a transaction, up from the original proposal of 12 cents, and takes effect this Saturday, Oct. 1.

The board also issued an interim final rule proposing a one-cent fee for fraud prevention and a five basis point allowance for fraud costs.  The Fed said it could revisit those provisions based on public feedback.

Financial institutions with assets of $10 billion or less are excluded from the limits on debit interchange fees but community banks and credit unions, and some regulators, have expressed doubts as to whether this two-tiered system can be implemented.

Becker noted in his letter that because the capped interchange rate “will likely ultimately become the default rate, the board should consider the fraud costs for institutions with less than $10 billion in assets.''   

He added that therefore it is “logical to base the capped rate on the actual costs for all card issuers.''

Becker noted that there is nothing in the financial overhaul bill that mandated the Fed's regulation that prevents the Fed from taking the costs of smaller institutions into account.

Becker also wrote that NAFCU opposes establishing a certification process and reporting period for card issuers to certify they are complying with the Fed's fraud prevention standards.

Such a requirement is “unnecessary and would be nothing more than a waste of time, money and resources for card issuers,'' he noted.