Should Government Require PINs For Credit Cards?
Computer chips are starting to make credit cards more secure, but card issuers are resisting calls to implement the additional protection of a PIN, saying it would be a burden to consumers.
In response to the recent spate of data breaches at major U.S. retailers and banks, the House Commerce, Manufacturing, and Trade Subcommittee held a hearing on Tuesday to discuss “elements of sound data breach legislation,” including the question of whether to mandate the use of PINs with credit cards. (RELATED: JP Morgan Won’t Say Whether Obama’s Credit Card was Compromised in Hack)
In his testimony, Brian Dodge of the Retail Industry Leaders Association said that, “One area of security that needs immediate attention is payment card technology,” because the “woefully outdated” magnetic stripe technology still used on many cards today “is the chief vulnerability in the payments ecosystem.”
Retailers, he asserted, “have long supported the adoption of stronger debit and credit card security protections … [and] continue to press banks and card networks to provide U.S. consumers with the same chip-and-PIN technology that has proven to dramatically reduce fraud when it has been deployed elsewhere around the world.”
Research by the Federal Reserve, Dodge pointed out, has found that “PIN’s on debit cards make them 700 percent more secure than transactions authorized by signature.” (RELATED: Former Home Depot Employee Says Security Team was Understaffed, Warnings Were Ignored)
According to the Wall Street Journal, “chip-and-PIN” technology is already standard in Europe, Australia and Canada, making the U.S. “one of the few developed countries not to embrace it.”
Jon Krauss, senior manager for card payment strategy at Discover, told WSJ that the implementation of chip technology is “such a big shift that we didn’t want to make it more difficult than it already will be” by requiring customers to remember a new four-digit PIN when making purchases.
J.P. Morgan Chase, the nation’s biggest card issuer, toyed with the idea of issuing chip-and-PIN cards in 2014, but “put those plans on hold after testing them with consumers,” a person familiar with the market test told WSJ.
Last October, President Obama issued an executive order requiring federal agencies to adopt chip-and-PIN technology for all payment terminals and government-issued credit cards. Several large retailers—including Home Depot, Target, Walgreens and Walmart—joined the effort, pledging to install PIN-compatible card readers in all stores by Jan. 2015, but such measures can only improve security if consumers are issued cards that incorporate PIN technology. (RELATED: Without Bank Participation, Executive Order on Credit Cards Falls Short for Consumers)
In a letter to federal regulators earlier this month, Democratic Sen. Mark Warner said he is “puzzled” that many of the financial institutions they oversee are continuing to rely on signatures “when better anti-fraud technology and authentication measures exist.”
“As merchants spend billions of dollars this year to upgrade their infrastructure to accept chip-and-PIN enabled cards,” Warner said. “There is an insufficient emphasis being placed by federal banking regulators on insuring a meaningful improvement in consumer safety with the corresponding issuance of chip-and-PIN debit and credit cards in the private sector.”
Warner stopped short of calling for specific action, but included a list of questions for regulators that clearly indicated his support for efforts to “encourage or require the issuance of chip-and-PIN cards.”
John Breyault, vice president of public policy at the National Consumers League, told The Daily Caller News Foundation that, “At the end of the day, the issue comes down to the use of chips, more than the use of signature or PIN,” because chips are the single most important security feature.
“What we have seen from the implementation of chip-and-PIN in other countries,” he explained. “Is that a lot of the fraud migrates online,” making in-store protections like PINs or signatures less important.
“The larger issue,” he said. “Is that retailers support PIN technology because it is cheaper to process,” while banks are generally opposed because they “get a bigger fee when consumers use chip-and-signature than when they use chip-and-PIN.”
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