First, the good news;
consumers can usually get credit card debt forgiven when it is the result of fraudulent activity. Worst case scenario, assuming they do everything the way they should, the Fair Credit Billing Act limits their exposure to $50. More often than not, however, the credit card holder’s liability is zero.
So then, this raises the question—who takes the hit?
Before we get into that, let’s take a look at the nature of the problem.
What is Credit Card Fraud?
While the ultimate result is the same— one person uses another’s credit card information to make purchases of which the victim are unaware — credit card fraud can take a number of different forms.
Card-not-Present (CNP) – In this instance, nefarious individuals gain control of a cardholder’s number and personally identifying data and make online purchases, or charge items by phone. This type of credit card fraud is difficult to prevent because the thief is hiding behind technology.
Application Fraud – Stolen personal identification data is used to apply for credit cards. All they need is access to an individual’s name, address, date of birth and Social Security number. They’ll get a card if the person they chose has good credit. This can go undetected until the victim applies for more credit or reviews their credit reports.
Account Takeover — This tactic works a lot like application fraud, however, rather than applying for new credit after they get the personal data, they contact card issuers and use it to have existing billing addresses and PINs changed.
Skimming — Card data is captured at points of purchase, such as credit card readers at retail stores, gas stations and ATMs. This information is then sold or used by the thief to make purchases.
Detecting Credit Card Fraud
In each of the cases above, the best way to spot these crimes and protect yourself is keep a close eye on your credit accounts. Review your statements carefully each month. Make it a habit to review your credit reports at least three times annually too. This is easily accomplished because you can get a copy of each of your three reports free at AnnualCrediteport.com Another preventive measure is to place a “lock” on your credit so new applications will be denied until you authorize them personally. One really insidious aspect of credit card fraud is your credit rating could be downgraded, even if you aren’t held liable for the charges.
So, Who Pays?
Credit card holders, as mentioned above, can fall back on the Fair Credit Billing Act. If you report theft of your data before any charges are executed, you’ll have no liability at all. However, you could be held accountable for up to $50 if charges happen before you report them.
Debit cardholders don’t get off so easily.
You’ll have to come up with at least $50 of the total amount stolen if you report the loss or theft of a debit card within two business days of discovering it. You’ll be looking at up to $500, If you report after two business days, but within 60 calendar days. You could be on the hook for the entire pilfered amount if you report the loss after 60 calendar days.
Otherwise, though, the credit card issuer first takes the brunt of the crime, because the law will force them to reimburse the cardholder. However, the liability can then fall on merchants. Banks look for flaws in a merchant’s security processes and pass the bill along to them if any are detected. In extreme cases, a merchant’s insurance company will often be called upon to provide financial relief.
The good news here is you won’t have to come out of pocket much in instances of credit card fraud—if you catch it right away. On the other hand, it eventually falls upon all of us, because merchants pass their additional costs along to us in the form of higher prices.