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Trade groups request that Fed calculate international fraud losses in debit insurance costs

The American Bankers Association and several other trade groups asked the Federal Reserve on Friday to incorporate the costs of international fraud losses and cardholder inquiries into its current process of evaluating debit card insurance costs.

The groups requested the changes based on new information contained in the central bank’s 2011 Debit Card Issuer Survey.

“[W]e respectfully request the [Fed] to consider the inclusion of fraud losses on a U.S.-domiciled debit card account that are realized by issuers upon the unauthorized use of a debit card or debit-card account at a merchant location outside the [U.S.] as part of its calculation of the appropriate fraud loss ad-valorem component of the interchange standard,” the groups wrote in the letter.

Additionally, the groups said that debit card issuers bear the costs of international fraud losses as part of their debit-card programs.

“For example, a U.S. debit cardholder who has never traveled outside the [U.S.] may have debit card information compromised in the [U.S.] and then have that information used to perpetrate fraud at a merchant location in another country, where retail practices and law enforcement may be less effective at preventing such fraudulent activity,” the groups said.

The groups also advised the central bank to consider the new survey to calculate and set the interchange standard.

“The 2011 [s]urvey remedies a deficiency of the 2009 [s]urvey by breaking out certain costs, particularly with respect to cardholder inquiries, in a manner that expressly captures costs ‘associated with a particular debit card transaction,’” the groups said. “Unlike in the 2009 [s]urvey, data for these costs are now ‘available’ in a form that demonstrates how they are ‘related to a particular transaction,’ and the costs are therefore eligible for inclusion, and should be included, in determining the [i]nterchange [s]tandard.”

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