Who Is Liable for Credit Card Fraud?
Credit Card Fraud
Fraudulent charges on credit card accounts can cost a lot of money. However, federal law caps cardholder liability at $50 if they report the fraud to their issuer in a timely manner. And many major card issuers offer zero liability fraud policies. But the cost of fraud goes beyond that $50. Financial institutions also pay to run fraud departments, operate customer service representatives and incur chargeback fees.
Since it’s almost impossible to catch and prosecute credit card thieves, merchants who experience fraudulent transactions don’t have much hope of getting back their money. However, there are steps they can take to reduce the likelihood of fraud and minimize losses. The first thing is to ensure they’re PCI compliant and that their card readers have an EMV chip — this can stop scammers from trying to use stolen cards at their terminals. Merchants can also implement fraud prevention tools such as CAPTCHA, Verified by Visa and Mastercard SecureCode to keep scammers from stealing credit card information.
Finally, they can use machine learning tools that get to know their customers’ patterns of spending so they can spot unusual purchases — this can help them minimize the risk of losing money to fraudulent transactions. They can also reduce their liability by reporting the card stolen as soon as they notice it, which limits their liability to $50 if they do so within two days of discovering the loss or theft.
Who Is Liable for Credit Card Fraud?
Credit card fraud involves the unauthorized taking of another person’s credit or debit card and charging purchases for their own benefit. This can happen when the actual card is stolen, or when the card number is stolen from a website or other unprotected terminal. If a physical card is stolen and reported to the credit card issuer before any charges are made, federal law limits liability to $50, and many major credit card companies offer zero liability for their consumers.
It is also possible for criminals to take over a credit card account by changing access PINs, passwords and mailing addresses. This is more difficult to catch and resolve, but it can still result in large charges on a victim’s credit report that affect their credit utilization rate. In these situations, financial institutions may be liable for all charges. They may also be responsible for a percentage of fraudulent transactions, depending on when they are notified and how they respond.
In cases of card-present fraud – where the card is physically present at the time of payment, such as with a PIN or chip-enabled terminal – the cardholder is typically responsible for the fraudulent charges. However, federal law limits their liability to $50 and many card issuers offer zero-liability protection for consumers.
For card-not-present fraud, in which the card number is stolen but not the physical card itself – for example when a hacker steals credit card details from an unsecure ecommerce site or a dishonest employee swipes it at work – the liability is more complex. It depends on whether or not the cardholder reported the missing card as lost or stolen before charges appear and their card-issuing bank’s policies.
Card-issuing banks also have significant business costs for dealing with fraudulent transactions, including operating fraud departments and reimbursing their customers for unauthorized purchases. Plus, they may pass on some of the cost to their cardholders if they have specific policy limits like those mentioned above.
