Debit Card Skimming Illustrates Flaw In Fed’s Interchange Proposal

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TUCSON, Ariz. – Authorities discovered nine card skimming devices attached to local ATMs last week that caused thousands of dollars of fraud losses to area institutions, including $5,538 in fraudulent cash withdrawals on members of Hughes FCU.

Reimbursement for the fraudulent withdrawals, however, were not the end of expenses for the credit union – which also spent employee resources to contact members, block and reissue new cards, and enact strategies to decline transactions on the compromised cards. This is the latest example of credit union expenses incurred in offering debit cards that are not being figured into the Federal Reserve’s proposal to cap interchange on debit transactions, according to Carla Craig, vice president of operations for the $510 million credit union.

“The fraudster captured card numbers, including PINs, and made ATM withdrawals at ATMs in another state,” Craig told the Fed in a comment letter last week. She said the credit union credited back to each member the amount of cash withdrawn with the fraudulent cards.

The inability to count fraud-related expenses is among the main criticism being leveled by credit unions and banks at the Fed’s proposal, scheduled for a final vote in April and enactment in July.

As with many credit union executives, Craig said that legitimate costs incurred in operating a debit program, such as fraud prevention and resolution, should be included in determining the cap in interchange fees. She listed these as overhead, along with call centers, plastic, issuance costs, exception processing including chargeback, disputes and arbitration, fraud prevention and losses, technology, such as data security, payment infrastructure, and going green, because card life is two to three years.


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