Credit and debit card fraud are on the rise and this can mean an increase in write-offs that financial institutions are forced to make in accordance with the Fair Credit Billing Act. Below are a few ways financial institutions can limit their liability to repay unauthorized charges on customer’s accounts.
Card agreements must disclose the exceptions to the zero-liability coverage and these limitations be enforced by the lender:
1. Cardholder was not diligent in reporting or filing a claim. Time is of the essence under both the Fair Credit Billing Act and Electronic Fund Transfer Act.
2. Credit Cards: If a cardholder reports their credit card stolen before any charges are made, the cardholder is responsible for nothing. If the cardholder waits two billing cycles before reporting a lost or stolen card, they can be liable for up to $50 in charges.
3. Debit Card: If the cardholder waits more than 2 days but fewer than 60 days from when they received their statement or learn of the loss or theft (or in justified circumstances such as extended travel or hospitalization, within a longer period which is reasonable under the circumstances), the cardholder can be responsible for up to $500 in charges. If the cardholder waits more than 60 days to report debit or credit card fraud or theft, then the cardholder is liable for all the money taken.
4. The customer failed to use “reasonable care” to protect his/her identity. Did the cardholder give his/her card to a third-party to use? Did the cardholder write his/her PIN number on the debit card? If so, the customer failed to use reasonable care to protect his/her identity and the cardholder is liable for the resulting losses.
5. The cardholder must be willing to file a police report. If the customer is not willing to file a police report, it is likely because the unauthorized charge was made by someone close to them such as a child or family member.
6. Was the card at issue a corporate card or a personal card? Zero liability protection can also be withheld from corporate cards, and the financial institution does not have to assume any liability for unauthorized charges.
The policies on consumer liability are frequently changing and you don’t want to be on the hook for more liability than necessary. If you need assistance in drafting or revising company policies to protect your business or financial institution from liability, contact the experienced attorneys at Goosmann Law in our Sioux City, Sioux Falls, and Omaha offices.
 15 U.S.C. § 1693g