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Michigan Credit Union League Home » Information Services » Publications » News Articles  

MCUL: Target Data Breach Illustrates Problem Caused by Durbin Amendment   (Misc News: January 16, 2014)

The well-publicized data breach at Target stores illustrates how Congress’ decision to reduce interchange fees has left financial institutions, including credit unions, “holding the bag,” according to a letter from MCUL & Affiliates to members of the Michigan congressional delegation.

“While (the retailers) certainly endure risk to their reputation, as well as investigations and possible fines, the true cost of these crimes is born by financial institutions and their insurers that have little to no control over the actions, preparation and protections utilized by the retailer,” MCUL & Affiliates CEO David Adams said.

Target Corp. disclosed in December that about 40 million credit and debit cards may have been affected by a data breach that happened between Nov. 27 and Dec. 15. Later, the company disclosed that as many as 70 million shoppers could have been affected by the data breach.

“The Durbin amendment shifted billions of dollars of interchange income from financial institutions into retailers’ pockets, with no identifiable price-relief or benefit to consumers,” Adams said in the letter. “The current liability dynamic represents yet another arbitrary windfall that does nothing to encourage real reform or consumer protection.”

The Durbin amendment, so named because it was proposed by Sen. Dick Durbin, D-Ill., was a last-minute addition to Dodd-Frank when it was approved by Congress in July 2010. It required the Federal Reserve to limit fees charged to retailers for debit card processing.

In 2013, a federal district court ruled that the Federal Reserve did not comply with the Durbin Amendment when crafting a rule to limit interchange fees. The Fed is currently working on a revised interchange rule. The revised rule could further reduce interchange fees.

Click here to read the entire letter.


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