Executive Order Puts Federal Government Ahead Of Many Banks And Retailers In Moving to Chip and PIN

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We support reforms to the financial marketplace that protect consumers from unscrupulous banks and lenders.

By Consumers Union on Monday, October 20th, 2014

In response to the spate recent data breaches – Home Depot, Kmart and Dairy Queen have all reported breaches in the last month alone – President Obama announced a series of initiatives to improve consumer security on Friday.

From a payments safety perspective, the most important is the Executive Order (EO) directing the federal government to ensure that all federal payment cards – the ones employees use and the ones the government issues such as Direct Express prepaid cards – come with chip and PIN. The EO also requires that the federal government upgrade its retail payment card terminals to accept chip and PIN-enabled cards.

Consumers Union has been working for safer payments for decades, and we think the President’s action is great news for consumers because it will likely move the marketplace to chip and PIN.

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You may be asking, what is chip and PIN?

Chips make payment cards more secure than mag stripe cards because chips embedded in the cards make the authentication process more secure. (Authentication is the point in a transaction during which the question, “Is this payment card real?” is answered.) Because each chip is unique, a physical payment card with a chip cannot be duplicated. That means that crooks cannot counterfeit cards even if they have stolen a card’s account number.

PINs, when used with chips, make payment cards even safer. PINs are used for authorization. (Authorization helps answer the question, “Does the person using the card have permission to do so?”) PINs are more secure because while it may be easy to fake a signature, you can’t fake a PIN.

The President’s move is a big deal because it is pushing industry in the right direction, but there is a long way to go before chip and PIN is standard for payment cards.

Most big banks have made statements supporting a move to chip cards, but they have been awfully slow in making them available to consumers. (Read our colleague Martin Romm’s story of his battle to get a chip and PIN card here.) Worse, some are only issuing chip and signature cards, which are not as secure as chip and PIN cards. With some notable exceptions, not many retailers are ready to accept chip and PIN cards. Most consumers don’t know how to use the new cards, as they require a “dip” instead of a swipe.

To help businesses and consumers with the switch, the President also announced that American Express will offer a program to support small business upgrading their point of sale terminals to more secure standards, and that Visa will spend $20M to educate consumers and merchants on the new technologies.

While the move to safer cards is admirable, we want lawmakers and regulators to close the gaps in payments protections. Right now, the payment protections you get depend on the type of payment card you use. We think every way to pay should be safe. It’s time for parity in payment card protections.

Have you been a victim of unsafe payments? Share your story in the comments below.

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