Without Bank Participation, Executive Order On Credit Cards Falls Short For Consumers

Steve Pociask President, American Consumer Institute
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President Obama recently signed an executive order that requires government-issued credit and debit cards to be equipped with new chip and PIN technology aimed at reducing fraud. Given the persistent rash of data breaches aimed at American consumers and businesses, the security measure was met with applause. But despite this progress, the vast majority of consumers will still be left vulnerable because the president’s actions fall short without the cooperation of large banks.

Cybersecurity is one of our nation’s most urgent problems and fastest-growing sources of crime. According to the White House, more than 100 million Americans had their information compromised due to data breaches in just the last year. At the heart of the problem is outdated financial technology, particularly magnetic stripe cards that require signatures for verification.

America’s banks and credit card companies continue to distribute less secure, outdated, and easily forged cards with magnetic stripe and signature technology. Nearly all the rest of the developed countries in world, and now our federal government, have abandoned this grossly outdated technology for chip and PIN technology, which is the best existing method for safeguarding consumer transactions.

The combination of chip and PIN technology also provide frontline measures to keep fraud from occurring even in the event of a data breach. However, in order for these measures to be effective, financial institutions must distribute chip and PIN cards to their customers and afford them the two-factor authentication that is significantly more secure. By thwarting criminals at the source, chip and PIN cards can help keep the daily lives of consumers from being upended and disrupted from preventable fraud.

The nation’s largest financial institutions, some of the same ones taxpayers bailed out a few years back, have been reluctant to make the necessary investments in chip and PIN technology for their customers. Instead, they are opting for the lower cost use of ineffective magnetic stripes with chips. In doing so, they have exposed millions of Americans to unnecessary risks from the widely known vulnerabilities of outdated magnetic striped cards. If they are serious about protecting consumers’ personal and financial information, the nation’s banks and credit card companies should issue PIN and chip-equipped cards and invest in the in-store terminals needed to use them.

In order for America to effectively bolster its consumer safeguards, banks must be willing to distribute the latest card technology needed to protect consumer transactions — and our government must find the strength to demand it. While they work to shift the blame and costs of data breach to others, banks are allowing cybercriminals to grow more sophisticated, heightening our nation’s risk for fraudulent activity.

It is time for consumers to understand what is preventing them from receiving the same protections consumers have across the globe. And it is time for consumers to demand that they receive the necessary technology to keep them secure today and in the future.

By ordering federally-issued debit and credit cards to upgrade to more secure technologies, President Obama is making significant strides in strengthening America’s cybersecurity and data protection. But until the nation’s largest financial institutions stand up and put the interests of American consumers above their own profits, the discussion is a futile.

Steve Pociask is president of the American Consumer Institute Center for Citizen Research, a nonprofit educational and research organization. For more information, visitwww.theamericanconsumer.org.