WASHINGTON-As credit unions fight to delay or stop the Durbin Amendment, their trade organizations and analysts believe the Sony data breach could eventually help preserve current debit interchange income.
CUNA President Bill Cheney sent a letter to the Senate outlining how the Sony breach of 77-million consumers' financial data "will only exacerbate" the problems credit unions face with the proposed 12-cent interchange cap that is already below operational costs for running a debit program. The letter to senators Jon Tester (D-MT) and Bob Corker (R-TN), sponsors of bills to delay debit interchange legislation, pointed out that while the breach involvled Sony, financial institutions will foot the bill by reissuing debit cards.
While the issue of fraud costs not being covered by the Durbin Amendment has already been highlighted to Congress by CUNA and NAFCU, as well as by numerous bank and CU organizations, Ryan Donovan, VP of legislative affairs for CUNA, reminded the interchange issue is complicated. "Most members of Congress have not run financial institutions, and fraud is only one part of a very complicated issue. So to the extent that the costs of fraud (in running a debit program) are being understood by those in office, I am not sure. Unfortunately, incidents like the Sony breach paint a clearer picture."
Donovan also pointed out that the cost related to the Sony breach, estimated at $20 to $30 per reissued card, is for fraud, not fraud prevention. The Durbin Amendment only allows financial institutions to recover costs for fraud prevention above the 12-cent cap when they can prove the fraud prevention costs are justified.
Brad Thaler, VP of legislative affairs at NAFCU, pointed out that one of the best arguments the trade organization has on Capitol Hill today is that when a criminal steals debit card data, affected consumers do not call the merchant, they call the issuer.
"The Sony incident shows that large data breaches can have big impacts on financial institutions, costing money and staff resources to reissue cards," Thaler emphasized.
In Rancho Cucamonga, Calif., Caroline Lane, SVP business development and marketing for Co-Op Financial Services, contended there are savvy members of Congress who understand how fraud impacts the costs of running a debit program. "But there are a lot of people elected into office that really don't understand what goes into the costs of issuing debit cards," she said.
Bill Handel, VP of research and development for Raddon Financial Group, Lombard. Ill., cautioned that when CUs address the costs of debit fraud with elected officials, they should be ready for Sen. Richard Durbin (D-IL) to try to turn around their argument. Handel noted that in a letter to JP Morgan Chase CEO Jamie Dimon, Durbin accused financials of encouraging illogical and uneconomical actions by debit card users. "Financial institutions encourage the use of signature over PIN because it makes more money, and signature debit fraud is much higher than PIN," reminded Handel. "So I would be a little careful with this (fraud argument)."
