Zero May Not Mean Zero in Credit/Debit Card Liability

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February 5, 2015 by Lisa Brammer

Let’s play Jeopardy. I’m going to give you the answer, and you have to provide the question. Here goes, the answer is; Target, Home Depot, and UPS. Are you all hitting your buzzers? Who are three large companies with recent security breaches? I only gave a list of three—the first 3 that came to mind—but the list also includes Neiman Marcus, Michaels, PF Chang, Dairy Queen, Goodwill Industries, Sony Pictures Entertainment, and now Anthem.

The Target breach stole 40 million credit/debit card numbers and 56 million were stolen during the Home Depot data breach. That’s almost 100 million credit/debit cards with just these two companies.

When people talk about the these data breaches, they seem to shrug them off with the common battle cry, I don’t have to worry because I’m not liable for fraudulent charges. Right?

Yes,… and no. Normally you would be correct, but sometimes depending on the card and how you use it, you may actually be liable for some of the fraudulent costs.

Credit cards and debit cards are not created equal. Federal law limits credit card holder liability for fraudulent charges to 50 bucks. But, since credit card purchases are protected by the the Truth in Lending Act and debit cards are covered under the Electronic Funds Transfer Act their liability limits differ. The amount you are on the hook for when using your debit card is dependent on how quickly you report the fraud.

With that being said, many banks have liability policies that exceed the federal directives and offer zero-liability policies for their credit and debit cards. But, since they are offering this benefit of their own accord, it is important to read the fine print to understand how these zero-liability policies work and which transactions they apply to. For example some card issuers do not cover PIN-based transactions—no signature, no zero-liability coverage.

The regulation for debit cards has liability set at the same $50 as credit cards if it is reported within 2 days. If fraud is reported after the 2 days your liability leaps to $500. Worse yet, if you are one of those people who has a pile of unopened bank statements and you haven’t reported fraud within 60 days of receiving the statement with the fraudulent charges, you could be on the hook for the whole enchilata.

It’s also important to note that fraudulent credit card transactions can be cancelled immediately—you won’t have to pay, but with a debit card, the money is removed from your account. You will be out that money until the bank restrores the funds.

Visa and MasterCard say their debit cardholders have quick access to their money while fraud is being investigated, but legally they have 10 business days to investigate the fraud. Some debit card fraud vicitms said they didn’t have access to their money for weeks.

According to fraud experts, overall, credit cards are safer to use on an everyday basis than debit cards—even with a zero liability policy.

Founded in 1950, United Credit Service, Inc. is a full service, licensed revenue cycle management and debt collection agency in Wisconsin providing highly effective, customized one on one management and recovery solutions for our business partners. We offer pre-service collection solutions as well as traditional back-end collections. Visit our website at http://www.unitedcreditservice.com or call 877-723-2902.

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2 thoughts on “Zero May Not Mean Zero in Credit/Debit Card Liability

  1. […] I guess the look on my face said it all, because she went on to explain why: She and her husband, Frank, already had a home—with a low interest rate—which would be paid off in a couple of years, her husband drove a company car and hers was paid off a while back, and they no longer used or even had credit cards any more since they paid all of their bills online and used their bank issued debit cards for groceries and other purchases. (Don’t even get me started on liability differences between credit cards and debit cards, but check out a blog I wrote about that here.) […]

  2. […] I guess the look on my face said it all, because she went on to explain why: She and her husband, Frank, already had a home—with a low interest rate—which would be paid off in a couple of years, her husband drove a company car and hers was paid off a while back, and they no longer used or even had credit cards any more since they paid all of their bills online and used their bank issued debit cards for groceries and other purchases. (Don’t even get me started on liability differences between credit cards and debit cards, but check out a blog I wrote  for UCS about it here.) […]

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