August 17, 2010
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News: Who Really Pays For Credit Card Fraud?
Do you know what your liability is if your credit card information is stolen and the thief racks up hundreds maybe thousands of dollars against your account? If not, you're not alone. Unfortunately, most cardholders have no idea. You might be asking the question; "is it my credit card company or is it the merchant's bank?" The answer really depends on how the crime occurred. Either way you look at it, cardholders are protected by law wherein they are held liable for no more than $50 in fraudulent charges on a credit card and no more than $500 in fraudulent charges on a debit card provided they report the fraud within a designated amount of time.
Most lenders offer fraud protection that goes beyond the requirements of the law if the cardholder notifies the bank as soon as the fraudulent credit card charge is listed on the card statement. Getting back to the question above, liability depends on how the fraudulent charge is generated. If a credit card is physically swiped in the transaction, the card issuing bank becomes liable. However, if the theft occurs during a card-not-present (CNP) transaction, the merchant's bank becomes liable. A CNP transaction is one that occurs either over the phone or on an online purchase where the card is not physically examine by the individual or company initiating the transaction.
As noted earlier, cardholders have a designated amount of time to report any fraudulent activity to the credit card company if they want to be free from liability. Typically, that time expand anywhere from 48 hours to 90 days. With such a large variance in grace period, it's understandable why cardholders are consistently encourage to examine their accounts online on a regular basis; preferably every day if possible. Lenders don't often make it easy for cardholders to recognize fraudulent charges, especially those that are small. To be safe, cardholders should maintain a copy of all transaction receipts and act on the side of error in inquiring into any questionable transactions.