The Merchants Payments Coalition has criticised the Federal Reserve for making merchants pay for fraud prevention, even if banks do not prevent fraud (view press release). Although the Federal Reserve found that merchants bear 41% of signature debit fraud losses and 74% of such losses for card-not-present- transactions, its rules now mean that merchants have to pay fees that cover all fraud-prevention costs incurred by issuing banks. In October, the Fed took steps under debit-card reform to ensure that banks take effective steps to prevent fraud and to decide how much merchants and banks should bear for the cost of preventing fraud.
However, the coalition insists that the Fed’s rule rewards banks with more merchant funds if they self-determine that they prevent fraud. Instead, regulators should have to find that the banks actually reduce fraud before they get more funds.
In addition, the coalition claims that the US is behind most of the industrialised world in terms of card technology security, in part because of its use of signing for debit card purchases rather than using PINs. This has historically been more profitable for the banks and the coalition believes it is unfair to saddle merchants with the costs resulting from this ‘purposely outdated technology’. Instead the Merchants Payments Coalition believes that with this ruling – which does not encourage a decrease in fraud - the Fed is abdicating its regulatory role and simply allowing more money to flow to banks that issue debit cards. This does not assist merchants who already bear nearly half the cost of preventing fraud.