WASHINGTON — The Merchants Payments Coalition here, a group of retailers, supermarkets, drug stores, convenience stores, fuel stations, online merchants and other businesses, released a statement criticizing the U.S. Federal Reserve for “making merchants pay for fraud prevention even if banks don’t prevent fraud.”
Although the Fed found that merchants bear 41% of signature debit fraud losses and 74% of such losses for "card-not-present" transactions, its rules now require them to pay fees that cover 100% of fraud-prevention costs incurred by issuing banks, the coalition said.
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Under debit-card reform that took effect in October, the Fed was charged with ensuring that banks take steps to prevent fraud and decide how much of the cost of preventing fraud the merchants and the banks should bear. “Instead, the Fed rule rewards banks with more merchant funds if they self-determine that they prevent fraud,” the coalition said. “That will not be effective and regulators should have to find that the banks actually reduce fraud before they get more funds.”
U.S. banks lag much of the rest of the industrialized world in technology to make card transactions safer and remain mired in 1970s-era technology, in part because the less-safe transactions (signing for a debit card purchase rather than using a PIN number) have historically been more profitable for the banks, the coalition said.
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“The coalition believes it is unfair for the Fed to saddle merchants with the costs resulting from this purposely outdated technology,” the coalition asserted.
The Federal Reserve Board’s final rule, which was announced last week and goes into effect Oct. 1, allows non-exempt issuers to collect a 1-cent fraud prevention adjustment on debit card transaction revenues, so long as issuing banks self-certify that they meet the Fed’s fraud prevention standards. This fee, in addition to a 0.7% fee for fraud prevention costs already included in the interchange fee, would place the entire cost of fraud prevention on merchants, the coalition said.
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