As our new Congress swings into position, there is a laundry list of legislation in the works. Bills at the Federal and State level are either on their way to implementation or on the horizon for committees and legislative groups to consider.
On the Federal front, there are many pieces of legislation centered on consumer protections. New York representative Carolyn Maloney will reintroduce her Credit Cardholders' Bill of Rights Act with the new 111th Congress, and a similar bill will be introduced in the Senate by Colorado freshman Senator Udall.
Senator Whitehouse of Rhode Island, along with Illinois Senator Dick Durbin of Illinois has introduced the Consumer Credit Fairness Act. This bill amends federal bankruptcy law that governs equitable subordination of claims in bankruptcy cases where the bankruptcy emanates from high-cost consumer credit transactions.
The Consumer Credit Safety Commission Act of 2008 was also introduced by Senator Durbin in September 2008. This bill would establish the Consumer Credit Safety Commission and bring about new consumer credit safety rules that ban abusive, fraudulent, unfair, deceptive, predatory, anti-competitive or otherwise anti-consumer practices or product features for creditors. The bill would place restrictions on consumer credit practices or product features and establish requirements for clear and adequate information disclosure.
In December of 2008, the Federal Reserve approved the long awaited final "Reg. Z" rules to protect credit card users by prohibiting certain unfair acts or practices and improving the disclosures consumers receive in connection with credit card accounts and other revolving credit plans.
The Credit Card Interchange Fees Act of 2008 was introduced by Rep. Welch, of Vermont and requires credit card companies to disclose interchange rates as well as give the FTC and Federal
Reserve the ability to review and possibly reform interchange rates and terms.
Wences Casares, co-CEO of Bling Nation feels this would be welcomed by merchants. "The biggest impact Washington could have by acting on credit card regulation would be reducing interchange and therefore helping the 6 million small and medium-sized merchants who currently pay $4 billion a year in credit card fees and are subsidizing the payments for the larger players," he says. "Savings of up to $2 billion could go right back to the small and medium-sized businesses."
It is also expected that the 111th Congress will consider various pieces of legislation that address security breaches, including the requirements to make notifications of security breaches.
State legislatures are also undertaking legislation related to card transactions. Minnesota has taken the lead in establishing merchant liability if they do not take measures to protect credit or debit card data.
Michigan has established very specific rules and requirements that pertain to gift cards. New Jersey and Missouri also introduced legislation to hold merchants liable for failure to notify consumers when a security breach had taken place.
At the kernel of much of this latter legislation is accountability and responsibility for data breaches. Data breaches do not show signs of slowing down either. Recently, payment processor Heartland Payment Systems may have compromised some ten million credit and debit card transactions. This could be one of the largest data breaches ever reported.
"If the Heartland Payment Systems breach is any indication of what's to come in terms of legislation, then I believe the issue of credit card fraud will become the focus of future legislation," adds Cesares. "Magstripes on credit cards are outdated forms of technology that leave consumers exposed to fraud. Once a consumer swipes their credit card in a magstripe reader, all their personal information becomes available for hackers to abuse. The issue of inconveniencing the consumer is also a big factor: waiting seven days to receive a new card is incredibly inconvenient. So until merchants and banks change their thinking about payments, the issue of fraud will likely remain steady over the next four years."
Heartland is representative of many reported data breaches across the globe, and many of these breaches are driven by economic conditions.
At least Gary Goodrich, CEO of ProPay thinks so. "Card and payment security fraud are clearly on the rise globally!"
he says. "This increase in fraud clearly coincided with the economy's struggles. Law enforcement and policy makers must enforce strict and punitive penalties against these data-thief felons.The
criminals cause billions in real costs to us all, and they must be punished as dangerous criminals are punished — with long prison sentences. Greater international cooperation is also clearly needed to crack down on foreign-sourced criminal data stealing [and] hacking."
Scott Zdanis, co-founder and co-CEO of Merchant Warehouse believes that with unemployment comes desperation. "An increase in unemployment will push more people to take desperate measures like committing fraud or stealing information," he says. "Laws and regulation tend to trail trends like this, so I would not expect the increased efforts to combat this increase in fraud by the government and the payment industry to stop the increase of fraud in the near future."
"There's a hot black market for stolen personal information," says Mike Logan, President of IT Consultancy, Axis Technology. "[In] some instances a buyer will pay $2.00 per record, so the profits can be huge for a thief."
Wences Casares feels there is also a global component to card fraud. "Historically, rising levels of unemployment have been accompanied by an increase in credit card fraud," he says. "Payment processors have recently reported an increase in charge-backs related to friendly fraud, which occurs when the consumer makes a purchase he or she cannot afford and claims the credit card purchase was unauthorized. As banks, merchants, payment processors and others in the payments chain face increasing levels of fraud, the option of a local payments network becomes more alluring. Eliminating global players for local transactions enables banks to reap greater returns on local payments while retaining the relationship with the local merchant and giving the consumer a secure and convenient method of contactless payment at the point-of-sale."
Looking forward three to four years, many in our industry believe that we are likely to see an uptrend in legislation for card payment security issues.
"Card security is the number one concern in the payment system," says Bruce Jolly, an attorney with the law firm Venable, LLC based in Washington, DC. "The single cardholder who stretches a card limit or misses a payment is nothing compared to the risk of massive data capture by a fraudster messing with some link in the payment system. I'd look for tougher mandatory minimum security standards, prompt breach notification, card reissuance and identity repair at both the state and federal level to maintain the integrity of the payment system."
His colleague, Joseph Lynak, also an attorney with Venable, concurs. "The Federal Reserve has established as one of its highest priorities, developing additional oversight over all payment systems—including the credit card interchange and payment systems—it has become a global concern," he says.
One reason that lawmakers are so concerned about securing the integrity and security of card transactions is the role that such transactions could play in rebuilding our economy. "Card transactions could be useful in boosting consumer spending," Scott Zdanis says. "If we had to depend on consumers spending cash without the convenience of card transactions, that would reduce, delay and restrict spending."
Zdanis adds that the trick is for Congress to figure out how to motivate consumers to spend more. More, that is, than they would have without government intervention in a time of dropping income, falling credit limits, rising card interest rates and increasingly harsh cardholder agreements. "Giving banks more money to lend and assuming some of the burden of bad debt, would help banks give cardholders more incentive and ability to spend," he says. "Direct incentives to cardholders from the
government are more difficult or costly. For example a temporary reduction in sales tax or increases in consumer spending that can be written off in consumers' taxes could boost card transactions and consumer spending."
Mike Logan says that state actions will promulgate Federal action. "As more and more states pass legislation to regulate consumer privacy, Congress will be forced to act," he says. "A number of laws have been previously proposed and faced strong opposition from the credit card industry lobby. This has slowed down the process, but now with states passing much stricter laws, some agreement
will be needed at a national level to provide consumers the privacy they deserve and expect."
Dennis Simmons, CEO of SWACHA, a trade association for the electronic payments industry located in Dallas, Texas, concurs. "My general sense is that consumers are pulling back from use of credit instruments, especially credit cards," he says. "That said, judicious use of credit can be of benefit to
consumers by making purchases that will provide the so-called ripple benefits to the economy. Consumer education has been and continues to be a major challenge for the industry and should be a focus if we want to encourage responsible use of credit cards." 
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