2015 Fraud Liability Study: Which Cards Protect You Best?

Fraud LiabilityDespite the fact that fraudulent losses amount to only $0.05 per $100 in credit and debit card transactions, consumers have an obvious and increasing fear of fraud – particularly the digital variety. Identity theft and hacking are actually Americans’ two biggest fears, according to a recent Gallup poll, reflecting the toll recent data breaches have taken on our cultural psyche.

Fear of fraud has unfortunately been known to influence consumer banking and spending habits, often dictating which payment vehicles we use and, in extreme cases, fostering a debilitating level of paranoia that makes operating within the modern banking system impossible. But is it really something we need to worry about? And, if so, how worried should we be?

This study will strive to provide consumers with a valuable source of information regarding their vulnerability to financial losses as a result of card-related fraud, allaying concerns and clearing up common fallacies in the process.

Main Findings

 

Best Coverage Worst Coverage
Credit Card $0 guarantee on all networks N/A
Store Cards $0 guarantee from all major retailers N/A
Signature Debit Card $0 guarantee on all networks N/A
PIN Debit Card $0 guarantee from Discover
Amex doesn’t offer PIN debit cards
$0 guarantee from Visa & MasterCard when transaction processed on their networks
Otherwise, no coverage above federal law*
ATM Transaction $0 guarantee from American Express & Discover Visa & MasterCard say coverage is at the discretion of the issuing bank
*Federal Law: Liability limited to $50, if you report the loss to the issuer within two business days: $500, if you report within 60 days; no limit if you report after 60 days.

  • Credit cards provide superior fraud protection from both a financial and a psychological standpoint. Not only do all four major card networks offer $0 liability guarantees for unauthorized transactions, but the simple fact that money is not withdrawn from your bank account immediately after you make a transaction gives credit cards a leg up on debit cards. You’ll have time to notice the fraud before you pay your bill and thereby avoid having to reclaim lost money or sort out bounced checks.
  • With the exception of non-reloadable provisional prepaid cards, consumers do not need to take any proactive steps (such as registration) in order to qualify for fraud liability protection. However, consumers must report fraudulent or suspicious account activity to their card’s issuer immediately in order to benefit.

    The fact that the major card networks offer better fraud liability protections for signature debit card transactions than PIN debit card transactions could be an unintended consequence of the Durbin Amendment, which restricted the interchange fees for PIN transactions more so than those for signature transactions.

  • MasterCard, which had the worst protections when this study was first undertaken in 2013, has relaxed its policies a bit – removing the requirement that an account had to be in good standing to be covered and beginning to offer $0 liability coverage for PIN debit transactions that are processed on its network. MasterCard is now on par with Visa.

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Tips for Avoiding Fraudulent Losses

  1. Make a credit card your primary spending vehicle: Major card network policy shields all consumers from any fraud liability for unauthorized credit card transactions, and the alternatives are less secure given their debit-based nature and the uneven liability safeguards that apply to them.
  2. Regularly review your payment accounts: The best way to ensure minimum fraud liability, regardless of the type of payment vehicle you’re using, is to spot any unauthorized transactions as soon as possible and report them to the respective financial institution that issued your card. In other words, make it a practice to regularly review your account activity (we recommend doing so weekly) and make sure to save your receipts in order to compare them with the transactions that appear on your statement.
  3. Sign for debit card transactions, when possible: Though debit card transactions “verified” by signature account for a relatively higher share of all fraudulent debit card transactions than those “verified” by PIN, consumer liability is lower when a signature is used since card networks want to promote such transactions given their increased profitability.
  4. Don’t leave room for doubt: Never leave the final amount of a transaction open for interpretation. That means, for example, making sure to always fill in the “Tip” field on a bill, even if you’re only going to write “$0.00.”
  5. Safeguard your PIN: When using a card with a Personal Identification Number (PIN), make sure not to tell others what it is, write it down anywhere that a third party could access it, or let bystanders see it when inputting it at the point of sale or ATM.
  6. Be careful about whom you share account information with: In addition to making sure that no one but you knows your PIN, there are a few other simple steps that you can do to prevent sensitive financial information from falling into the wrong hands and ultimately putting a dent in your bank account:
      a. Do not provide financial information to another party unless they are reputable and you reach out to them first, as opposed to them proactively contacting you over the phone or via e-mail.
      b. Do not send private account information (e.g. your credit card number or online banking password) via e-mail, as it doesn’t tend to be secure.
      c. Make sure that any website through which you submit a credit card number has an address that starts with “https” and a domain name that matches the name of the site you’re on.
      d. Shred any documents that contain financial account numbers before throwing them away and make sure to update your address on file with your bank/card issuer if you move.
  7. Don’t worry so much: While it’s clear that people are generally quite concerned with the prospect of fraud, the tiny percentage of transactions that it affects and the consumer-friendly liability safeguards that are in place mean that you have very little to worry about, particularly if you take the aforementioned steps to minimize your vulnerability.

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Detailed Findings

We’ve given you an overview of how card network liability policies vary by payment vehicle, but, as with most credit card programs, these general rules have their fair share of fine print and caveats. In the interest of giving consumers the full story and enabling them to determine their rights and responsibilities under any scenario, we have also compiled more detailed information on card network rules as well as federal regulation relating to fraud liability.

Federal Law

Consumer Liability:

  • Credit: $50
  • Debit – Signature:
    • Liability limited to $50, if you report the loss to the issuer within two business days
    • Liability limited to $500, if you report within 60 days
    • No liability limit, if you report after 60 days
  • Debit – PIN:
    • No liability coverage, if it can be proven that you furnished the PIN used to make the transaction(s) in question
    • Same liability as for debit signature, if it can’t be proven that you furnished the PIN used to make the transaction(s) in question
  • ATM transactions: Same as debit – PIN

How To Report Fraud:

  • Credit: Send letter to creditor including name, address, account number, and details of unauthorized charge(s) so that it arrives at “billing inquiries” address within 60 days of first statement containing error being made available.
  • Debit – Signature: Send letter to bank including name, address, account number, and details of unauthorized charge(s) within aforementioned timeframes.
  • Debit – PIN: You must report fraud within aforementioned timeframes. & officials must not be able to prove that you furnished PIN.
  • ATM transactions: Same as debit – PIN

Other Information

Visa

Consumer Liability:

  • Credit: $0
  • Debit – Signature: $0
  • Debit – PIN: $0 liability if transaction is processed by Visa; No liability protection above what the law provides if transaction is not processed by Visa
    • Consumer has no way of knowing what network transactions are processed on and therefore how much coverage they have.
  • ATM Transactions: The liability is with the issuer

How To Report Fraud:

  • Credit: You must notify your financial institution immediately of any unauthorized use. Transaction at issue must be posted to your account before provisional credit may be issued. For specific restrictions, limitations and other details, please consult your issuer.
    • Definition of Immediately: “Per our Zero liability policy, the cardholder liability is $0 for 120 days from the posting date of transaction or 60 calendar days from cardholder notification to issuer (if evidence of previous negotiation with Merchant).”
  • Debit – Signature: Same as credit
  • Debit – PIN: Same as credit
  • ATM transactions: Contact your issuer immediately

Other Information

  • “Individual provisional credit amounts are provided on a provisional basis and may be withheld, delayed, limited, or rescinded by the cardholder’s issuer based on factors such as gross negligence or fraud, delay in reporting unauthorized use, investigation and verification of claim and account standing and history. Card holders must notify their financial institution immediately of any unauthorized use, upon receipt of notification from its Cardholder of unauthorized Visa transactions, a U.S. issuer must limit the cardholder’s liability for those transactions to zero. Transaction at issue must be posted to the cardholder’s account before provisional credit may be issued. For specific restrictions, limitations and other details, cardholder’s should consult their issuer. Verified by Visa requires online activation and Identity Theft Assistance offers access to a toll-free number. Consult issuer for additional details or visit www.visa.com/security.”
  • Visa’s Zero Liability Policy does not apply to Visa corporate or Visa purchasing card or account transactions.
  • Online Source(s): Visa Zero Liability

MasterCard

Consumer Liability:

  • Credit: $0
  • Debit – Signature: $0
  • Debit – PIN: $0 liability if transaction is processed by MasterCard; No liability protection above what the law provides if transaction is not processed by MasterCard
    • Consumer has no way of knowing what network transactions are processed on and therefore how much coverage they have.
  • ATM transactions: Federal Law applies

How To Report Fraud:

  • “As a MasterCard cardholder you will not be responsible in the event of unauthorized purchases provided that the following preconditions are met: You have exercised reasonable care in safeguarding your card from any unauthorized use. You have promptly reported to your financial institution when you knew that your MasterCard was lost or stolen.”
  • Debit – Signature: Same as credit
  • Debit – PIN: Federal Law requirements apply
  • ATM transactions: Federal Law requirements apply

Other Information

  • Zero Liability does not apply to MasterCard cards (i) issued for commercial, business or agricultural purposes, except for MasterCard commercial cards used for small businesses as listed on www.mastercardbusiness.com; or (ii) if a PIN for a debit transaction is used for the unauthorized purchase.”
  • Online Source(s): MasterCard Zero Liability

Discover

Consumer Liability:

  • Credit: $0
  • Debit – Signature: $0
  • Debit – PIN: $0
  • ATM transactions: $0

How To Report Fraud:

  • Credit: “Please notify us immediately* at 1-800-DISCOVER (1-800-347-2683). Your assistance in determining the facts related to any theft or unauthorized use will be very helpful.”
    • “*We don’t have a set number of days required to report fraud, you’re not responsible for any unauthorized purchases on your Discover card account.”
  • Debit – Signature: Same as credit
  • Debit – PIN: Same as credit
  • ATM transactions: Must report the fraud (generally within 180 days).

Other Information

American Express

Consumer Liability:

  • Credit: $0
  • Debit – Signature: $0 (This pertains to prepaid debit cards, as American Express does not offer traditional debit cards)
  • Debit – PIN: N/A (American Express does not offer debit cards with PINs)
  • ATM transactions: $0

How To Report Fraud:

  • Credit: “Notify network at the 800 number on the back of your Card. In most cases, a temporary credit is given immediately.”
  • Debit – Signature: Same as credit
  • Debit – PIN: N/A
  • ATM transactions: “If Cardmembers suspect unusual activity on their Cards, they should let American Express know as soon as possible.”
    • “Regarding ATMs in Corporate Card Members – not all Corporate Card Members have access to the Express Cash program. The program is offered to Corporate Card members at their company’s discretion and Card Members must receive authorization from their company to participate in the program. If the Corporate Card Member has access to the Express Cash program, they are protected against fraudulent transactions.”

Other Information

Store & Gas Station Credit Cards

 

Liability Limits Requirements Liability Limits Requirements
Walmart $0 liability limit Call Issuer Immediately Staples $0 liability limit Call Issuer Immediately
Target $0 liability limit Call Issuer Immediately Victoria’s Secret $0 liability limit Call Issuer Immediately
Costco $0 liability limit Call Issuer Immediately Toys R Us $0 liability limit Call Issuer Immediately
Home Depot $0 liability limit Call Issuer Immediately Dell $0 liability limit Call Issuer Immediately
Lowes $0 liability limit Call Issuer Immediately Belk $0 liability limit Call Issuer Immediately
Best Buy $0 liability limit Call Issuer Immediately Chevron $0 liability limit Call Issuer Immediately
Sears $0 liability limit Call Issuer Immediately Shell $0 liability limit Call Issuer Immediately
Amazon $0 liability limit Call Issuer Immediately ExxonMobil $0 liability limit Call Issuer Immediately
Macy’s $0 liability limit Call Issuer Immediately Menard $50 liability limit Call Issuer Immediately
Kohls $0 liability limit Call Issuer Immediately Office Depot & OfficeMax* $50 liability limit Call Issuer Immediately
TJX $0 liability limit Call Issuer Immediately Dillard’s $50 liability limit Call Issuer Immediately

 
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Methodology

The information provided in this study was gleaned from a combination of federal law, marketing copy, and a survey of both the largest card networks (i.e. VISA, MasterCard, Discover, and American Express) and a number of major national retailers. The information collected was verified with each network and all retailers, and any correction provided was incorporated into the report.

More specifically, we sought to determine the consumer fraud liability safeguards that are in place for credit card purchases, debit card transactions (both PIN and signature), and ATM withdrawals. Prepaid cards were not evaluated separately because they offer the same fraud liability protections as traditional debit cards. We also unearthed the requirements that consumers must fulfill in order to benefit from these protections, where applicable.

Viewing this information in concert, we determined the minimum and maximum level of consumer liability for unauthorized account access when using different spending vehicles and making various types of transactions and, ultimately, came to overall conclusions that will help consumers better understand and manage the potential impact of fraud on their personal finances.

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Our content is intended for general educational purposes and should not be relied upon as the sole basis for managing your finances. Furthermore, the materials on this website do not constitute legal advice and should not be relied upon as such. If you have any legal questions, please consult an attorney. Please let us know if you have any questions or suggestions.