Viewpoint: Michaels Breach is Warning on the Durbin Amendment

From: USBanker

By Camden R. Fine

The data breach at Michaels Stores, which now appears to have affected consumers in at least 20 states, paints a disturbing picture of the sophistication of modern-day criminals and of large retail chains that would rather spend their time lobbying for controls on debit interchange fees than protecting their customers.

In recent weeks, community banks have been hit hard with the costs of maintaining their debit and credit card programs. Although Michaels Stores is taking heat in the press for its security failure, community banks are taking the financial hit.

These data breaches are a reminder that interchange revenue is so critical to local community banks; it helps them quickly reissue debit and credit cards to their customers to protect them against fraud.

You’d think community banks make a pretty penny off interchange revenue, but that is not the case. Many community bank debit programs merely break even, and the lucky ones generate only a modest profit. However, even the best-run programs can have their profits wiped out several times over by a single incident of fraud.

Debit interchange pricing must take these risks, among the other significant expenses of providing debit card services, into account. The price controls imposed by the Durbin amendment in the Dodd-Frank Act as implemented by the Federal Reserve would only allow a maximum of 12 cents per transaction, no matter the size of the transaction.

If the Fed rule goes into effect, fraud costs will be funded not by interchange revenue or by retailers, but by consumers and the community banks.

The breach at Michaels underscores the need to rethink the debit interchange price-fixing rule and its impact on community banks and consumers.

That’s why community banks support legislation that would delay the Fed rule and give regulators time to see how harmful it would be.

Camden R. Fine is the president and chief executive of the Independent Community Bankers of America.

—American Banker

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