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

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

NAFCU President/CEO Fred Becker wrote that some costs associatedwith customer inquiries should have been included. He also askedfor clarification if costs such as research and development, cardactivation, PIN customization and merchant blocking were includedin the calculation.

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

The board also issued an interim final rule proposing a one-centfee for fraud prevention and a five basis point allowance for fraudcosts. The Fed said it could revisit those provisions basedon public feedback.

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

Becker noted in hisletter that because the capped interchange rate “will likelyultimately become the default rate, the board should consider thefraud costs for institutions with less than $10 billion inassets.''

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

Becker noted that there is nothing in the financial overhaulbill that mandated the Fed's regulation that prevents the Fed fromtaking the costs of smaller institutions into account.

Becker also wrote that NAFCU opposes establishing acertification process and reporting period for card issuers tocertify they are complying with the Fed's fraud preventionstandards.

Such a requirement is “unnecessary and would be nothing morethan a waste of time, money and resources for card issuers,'' henoted.