Credit Card Fraud: Who’s Legally Responsible?

Sunday, December 27th, 2009

Every year, credit card fraud costs the banking, retail, and service industries billions of dollars. In the United States, it is estimated that on average, 7 cents per $100 in transactions is fraudulent. In other countries, that amount is reportedly even higher.

Who Pays For It?
In the United States, federal law dictates that a credit card holder cannot be held responsible for more than $50, regardless of how much is charged. If unauthorized charges occur after you report your card lost or stolen, you are not responsible for any amount.

Although credit card companies can technically hold you liable for the first $50 in disputed charges, they rarely do. Nowadays most banks use “$0 fraud liability” as a marketing strategy. The American Express Platinum card and Centurion black card were some of the first to offer this as a benefit, but now all American Express cards do the same, as well as most other major banks.

Therefore, the financial institutions that issue and underwrite credit cards are almost entirely responsible for the cost of fraud.

Is Identification Required For Purchase?
Although many merchants ask for photo identification when processing a credit card purchase, they are not required to do so. In fact, Visa, MasterCard, American Express, and Discover actually have policies which discourage asking for ID. Instead, they state all that’s needed is the cardholder’s signature. Many favor this practice; claiming it makes transactions easier and faster. Meanwhile, others wish that photo IDs were required, in order to discourage unauthorized credit card usage.

Tags: american express platinum card, credit card fraud
Posted in Banking and Investment Law, Credit Cards | Comments Off