• Cloakroom Confidential: Durbin Pushes ‘Chip & Pin’ Scheme Despite Security Flaws

    When a member of Congress pushes legislation it is prudent to ask “who benefits?” When it comes to Sen. Dick Durbin’s demand that credit card consumers be forced to enter a PIN number when they use their cards, the answer is obvious — the big retailers who have filled Durbin’s campaign coffers for years. This is a problem that Congress seems to attempt to tackle every few years with little result.

    Fraud is a big problem for department stores and the problem gets much worse during the holiday shopping season. Individuals take advantage of stores loaded with shoppers to steal merchandize from the shelves and to commit fraud with stolen credit card information. This is a problem with no easy solution.

    Sen. Durbin has been pushing a scheme that benefits the big department store chains. They don’t want to have to pay for credit card security measures, so they are trying to use the power of the federal government to shift cost to the banks. The people who are the victims of theft are the department stores, so they really should do a better job of protecting customers and banks from theft.

    Durbin was the retailers’ champion when they demanded government impose strict price controls on the fees credit cards charge businesses when people use their cards. The fee, known as “interchange,” was the focus of a massive lobbying campaign by storeowners who claimed that lowering the fee would result in lower prices for consumers. Of course, Durbin passed his fee restrictions and the retailers laughed all the way to the bank.

    Now they are at it again.

    After being hacked and responsible for millions of lost credit card numbers, the retailers turned to Durbin again to push their latest scam known as “Chip and PIN.” Durbin has become obsessed with the idea that consumers use a four-digit PIN number in order to use their credit card. There are only 10,000 combinations to four digits. Anyone smart enough to hack a computer system of a big-box store is capable of writing a simple program to figure out a PIN number. Some protection.

    The sad reality is that government forcing one solution will give the bad-guys a roadmap on breaking the code. That is exactly what happened in Europe when the socialists of the European Union forced a Chip and PIN scheme on credit card companies. Thefts of credit cards dropped in the initial few weeks and then skyrocketed back to previous levels.

    Who suffers when there is a data breach? Surely consumers who have to deal with the hassles of getting a new card and denying charges. But it is the credit card companies that bear the costs. They have every incentive in the world to find a solution that works.

    Durbin knows nothing about cyber security. He is not an expert in credit card theft or technology data. He is a politician who has friends in the big box world. They want to wash their hands with the responsibility of losing tens of millions of credit card numbers to data breaches. By forcing Chip and PIN on the public, they feel they can wash their hands of responsibility — and Durbin is more than happy to help them do it.

    Speaking to Politico, one GOP staff member commented, “It’s troubling that merchant trade associations have chosen to mislead consumers and Members of Congress in their push for ‘chip-and-pin’ for payment cards. This week, merchants will put forward a witness for the House Small Business Committee hearing on EMV migration that Sen. Durbin has dubbed his ‘secret weapon’ on interchange. “This follows Durbin’s letter to the FBI advocating for an endorsement of ‘chip-and-pin’. It is becoming increasingly clear that ‘chip-and-pin’ is nothing more than an interchange play by the merchants with the help of their old pal Sen. Durbin. I suspect the gloves will be coming off.”

    And they should. Cronyism comes in different forms. In this case, it comes with a PIN number.


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    Cloakroom Confidential

    Cloakroom Confidential was a longtime Capitol Hill staffer and insider who has contacts in the House and Senate at the highest levels.

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