Retail groups say credit card system needs overhaul

The nation's credit and debit card system is prone to fraud and needs a major overhaul.

That was the message the National Retail Federation, the world's largest retail trade association, brought to the U.S. Senate Wednesday.

In a news release, the federation charged that banks' insistence on cards that use a signature instead of a Personal Identification Number puts merchants and their customers at risk. The federation said that credit card companies continue to promulgate the use of the fraud-prone signature cards despite 25-year-old research that PIN-based cards provided more security for consumers.

"Everything a fraudster needs is right there on the card," federation senior vice president and general counsel Mallory Duncan said, describing how the cardholder's name and account number are clearly printed on each card along with the expiration date and security code. "The bottom line is that cards are poorly designed and fraud-prone products that the system has allowed to continue to proliferate."

Duncan submitted his statement to the Senate Committee on Commerce, Science and Transportation, which held a hearing on criminal cyber attacks in which consumer card numbers have been stolen. He said current magnetic stripe cards with signatures are too easy to duplicate and forge.

"There are technologies available that could reduce fraud," Duncan wrote. "An overhaul of the fraud-prone cards that are currently used in the U.S. market is long overdue."

The trade group advocated replacing current cards where consumers sign to approve a transaction with next-generation cards that would require a PIN, which Duncan said is the single most important fraud protection step that could be quickly taken.

The group also supports end-to-end encryption of data, tokenization rather than storing data and mobile payments.

The trade federation represents discount and department stores, home goods and specialty stores, Main Street merchants, grocers, wholesalers, chain restaurants and Internet retailers from the United States and 45 other countries.

wharton@sltrib.com

Twitter: @tribtomwharton